There’s a common saying in the business
world: “A business is only as good as its people.” So what happens when one of
your key employees wants to quit?
Although the resignation of an important
team member is not a piece of news any business owner wants to hear, it’s an
inevitable part of doing business, and it doesn’t have to be a disaster. If you
handle the situation well, you can either retain the employee or ensure a
smooth transition when they do leave.
In this tutorial, we’ll look at all the
steps you need to take to ensure that things do go smoothly. We’ll cover
everything from handling the initial conversation and putting together a
counter-offer through to arranging the handover, exit paperwork and exit
interview if they do still decide to leave. And, in the final section, we’ll
also look at a related issue: what to do when the shoe is on the other foot and
you’re the one who wants to fire one of your employees.
By the end of this tutorial, you’ll be clear about how to handle an employee resignation or termination effectively. This is part of a larger series on HR for small business, so we’re talking primarily about how a small business owner can handle the situation. In a larger company, many of the same principles apply, but the situation will probably be handled by different people or departments.
1. How to Handle the Initial Conversation
When a key employee tells you they want to
leave, it may feel like a slap in the face. The business consequences are one
thing, but there may also be the personal feelings of rejection or even
After all, when you work closely together
every day for years, you’ll often develop a relationship that feels a lot like
friendship. In small businesses with few employees, that relationship can be
even closer and the sense of working together towards a common goal even
stronger, which makes separation harder.
There’s also often a cloak-and-dagger
quality to the whole thing—when people are interviewing for a new job, they
usually do it without telling you, so that they don’t hurt the working
relationship if things don’t pan out. But that means that when they do break
the news, it feels like a bolt from the blue, and you’re left wondering how
long they’ve been planning this.
All of these feeling are natural, but it’s
important to accept the news in a mature, understanding fashion. The reality is
that the average person today changes
jobs 10 to 15 times in their career, spending five years or less in each
job. While you want to do everything you can to keep your employees happy and
reduce turnover, people will still leave.
Often, too, there’s nothing you could have
done to avoid it. The person may want to switch to a new industry or access an
opportunity that your company doesn’t offer. Then there are personal reasons: a
spouse’s move to a new city, a sick relative to take care of, and so on.
There’s no need to take it personally. That old line “It’s not you, it’s me”
really is true sometimes.
So don’t blame, accuse, or in any other way
make the employee feel bad for doing something they have a perfect right to do.
It’s fine to say you’re sad or disappointed to be losing such a valuable
employee, but be sure to follow that up by saying that you understand and are
happy for them to have such a richly deserved new opportunity.
Do try to gather some information at this
point that will be useful for the next steps you have to take. Here are some
important points to cover:
- Get very clear about the
reasons for the departure. Ask open-ended questions to try to elicit any extra
reasons, without being too intrusive or making the person feel defensive.
- Try to find out whether there’s
anything you can do to convince the person to stay.
- Ask if they’ve already told any
of their colleagues.
- Find out when they plan to
If they haven’t told any of their
colleagues yet, it can be a good idea to ask them to hold off for a day or two
while you figure out the best way to announce it. This also gives you time to
put together a counter-offer, if you choose to do that. More on that in the next
2. How to Put Together a Counter-Offer
If the employee is extremely valuable to
your business, you may consider making a counter-offer. This strategy can be
successful in about two-thirds of cases, according to a survey by The Creative
Group. But it depends a lot on the employee’s situation, which is why it’s
important to gather information in the initial conversation.
If your employee has always dreamed of being
a journalist and has landed a competitive entry-level reporting position at The New York Times, for example, there’s
probably no counter-offer in the world that could persuade them to stay at your
small accounting firm. So don’t bother with a counter-offer—just wish the person
well, make the transition pleasant for everyone, and try to stay in touch for
But there are many situations in which a
counter-offer can be effective. The most obvious is when the person is leaving
because of a higher salary offer elsewhere. Then you have a simple choice to
make: can you afford to match it?
Consider your budget, and try to do some
research to figure out the employee’s true worth in the job market. How much
would you have to pay to hire a quality replacement? It’s worth paying a little
extra on top of that to avoid the disruption and expense of making a new hire.
For more details on this topic, see this previous tutorial from our HR series:
Also keep in mind that your pay scale
should be fair, so if you give a large raise to one employee, others may expect
the same. There may also be morale problems if people feel that disloyalty is
rewarded more than loyalty. And try to establish whether there are other
underlying reasons beyond salary (there usually are). If you don’t address
those, the employee may leave a year later, and your counter-offer did nothing
but delay the inevitable while setting a precedent for giving raises to people
who want to leave.
What if the person is leaving for a
different reason? The good news is that counter-offers are not only about
money. So you can get creative and think of ways to solve that person’s problem
in a way that helps them to stay with you.
If they’re leaving to take care of a sick
relative, for example, offering more money is unlikely to make a difference,
and it may even offend them. But your counter-offer could involve giving them
more flexibility to work from home, or to work different hours so that they can
coordinate care with a partner, or perhaps shifting them to a freelance or
contract arrangement where they work for you only when they’re able to.
This is just an example, and of course you
need to consider carefully whether the terms you offer will work for your
business or not. But the point is to consider whether you can address the
employee’s reasons for leaving in a way that makes everybody happy. Try to do
this as quickly as possible—within a day or two of receiving the news. If you
delay too long, the move becomes a fait
accompli, and even a reasonable offer is unlikely to change things.
3. Arrange the Handover
If the person rejects your counter-offer, don’t
waste any more time with negotiation. Just accept that they’re leaving and act
fast to ensure a smooth handover. That involves doing the following:
Establish a Timeline
In certain industries where employees have
access to very sensitive data, employers sometimes ask them to leave
immediately, but in general, you want to aim for as long a handover period as
possible. An important member of your team carries a lot of knowledge with
them, and you’ll need time to ensure that it’s not all lost when they walk out
of the door.
Start the Hiring Process Immediately
Assuming that you’ll be hiring a
replacement, start that process straight away. The ideal situation is to have a
replacement lined up before the person leaves, so that they can train that
person directly. Because of the time involved in hiring staff, that may not be
possible, but starting early will at least minimize the gap, if nothing else.
Start by considering whether anyone inside
the company could step up into the role, and ask if they’d like to apply.
Internal promotions are great for employee morale and retention. And besides, some
University research has found that internal hires tend to outperform
external recruits, at least for the first two years, while costing less.
You could also ask people whether they’d
like to take on any of the departing employee’s individual tasks. That may make
the handover easier because it can be done directly.
If you can’t have the employee train a
replacement directly, it’s important to document everything they do clearly so
that the next person can take over eventually.
Try to be involved in this yourself, or
delegate someone else on your staff to do it. You want someone to understand
the handover documents and be able to explain them in person to the
replacement, instead of just presenting them with a mass of files and notes.
4. Do the Paperwork
There will also be some administrative
things to do before the employee leaves. The details of some of them may vary
depending on where you’re based and any relevant employment laws, but here’s a
Make Any Necessary Tax Filings
You may need to fill out tax forms when an
employee leaves. In the UK, for example, employers must complete a P45 form stating how much
tax has been paid so far in the tax year, with one copy going to the tax
authorities and other copies to the employee.
Recover Company Property
You may have given the employee a company
laptop to use at home, or other property. Ensure that you have a clear
inventory of who owns what, and make sure it’s all handed back in time.
Process the Final Payroll and Organize Benefits
You’ll need to calculate the employee’s
final paycheck and ensure it gets paid on time, as well as any outstanding
bonuses or other amounts due.
Also figure out what’s going to happen with
the employee’s company benefits: do they retain access to any of them, such as
healthcare, or do they terminate on the day of departure? What do you need to
do with the employee’s retirement account, to ensure that contributions are
stopped but that the employee’s money is preserved for the future? How many
vacation days has the employee taken, and do you need to pay them for any
Make sure the employee is aware of what
will happen, and that you comply with local rules and regulations. For more,
see the following tutorials:
PaymentsHow to Run Payroll (Systematize Your Process)
Small BusinessWhat Are the Important HR Requirements for Small Business?
Small BusinessHow to Offer Competitive Small Business Pay & Benefits
Cover the Legal Stuff
It’s good practice to ask the employee to
put the resignation in writing, just in case any dispute comes up later about
how the employment ended. Also check the employment laws in your country to see
if there are any legal notices you are required to give the employee when
they’re leaving. And review confidentiality agreements and other legal
documents the employee signed, to make sure that you’re both clear on how they
apply after the person has left.
It may seem petty, but on the employee’s
final day, make sure you revoke access to all of your computer systems as well
as collecting any cards or keys that give access to your physical property. You
may trust that particular employee, but over time, having a bunch of
ex-employees with access to company accounts and buildings will create a major
Mark the Occasion
No matter the circumstances of the
departure, organizing some kind of event to thank the person for their service
and wish them well is a nice touch. It shows not only the departing employee
but all your existing employees that you value their work.
5. Run an Exit Interview
The final thing you need to do before the
person leaves is to conduct an exit interview. The information you glean here
can help you to make improvements and reduce the chances of key employees
leaving in future. It will also help you to get clearer about the role itself
and how you can best hire and work with the person’s replacement.
You’ll want to ask more about the reasons
for the resignation. (Yes, we covered that before, but now that the departure
is confirmed and the employee is on the way out, they may open up more and give
more details.) Ask if anything in particular triggered the decision, and if you
or any other managers could have done anything to prevent it.
Ask about how the job was in general: the
best parts and the worst, anything that helped or hindered the person from
doing their job well. Were the objectives and requirements clear? Were the pay
and benefits up to expectations? Did the person have enough training and
interview template from Adelphi University is designed for nonprofits, but
most of the questions will be useful for any type of business. Use it as a
guide, and add your own questions as appropriate.
6. What If You Want Them to Leave?
So far, we’ve dealt with a scenario in
which a key employee wants to leave. But what if it’s the other way around? What
if you want to fire the person for poor performance?
Many of the steps are the same, especially
the later ones such as doing the paperwork, processing payroll and running an
exit interview. But there are some differences earlier on.
Specifically, you’ll need to document everything
to avoid an unfair dismissal lawsuit. And besides, following a clear process like the
one below is good not only for avoiding lawsuits, but also because it gives
employees a fair chance to improve and keep their jobs.
The first stage when you spot performance
issues is to speak to the employee and explain that they’re not meeting
In some cases, that may be all that’s
needed. The person may genuinely not know that a certain type of behavior is
unacceptable, and they may be doing something that was tolerated by a former
employer. Simply talking to the employee informally and explaining clearly and
firmly what you expect from them can often be enough get things back on track. Or
they may not have the training or support to do things the right way, so be
sure to ask if they need any kind of help.
Give a Series of Formal Warnings
If the poor performance continues, it’s
time to begin disciplinary procedures. This still may not end in firing the
person—keep an open mind and give the person a chance to turn things around.
Keep asking at every stage whether you can do anything to help them, or whether
there’s anything about the way the workplace is set up that is hindering them
from doing what’s required of them.
There should be a series of two or three
warnings, so that the employee is given time to work things out. At each stage,
document everything in writing: send a letter or email to the employee stating
that their performance is unsatisfactory, explaining exactly why, and inviting
them to a meeting to discuss it.
During the meeting, give the employee a
chance to give their side of the story and keep offering support or training to
help them improve. Afterwards, write to them documenting what was discussed and
making your expectations for future improvement clear.
Have the Dreaded Meeting
Nobody likes firing people, but sometimes
that will be the only option left. If your attempts to help the employee
improve have not yielded any significant improvement in results, then you’ll
have to terminate their employment.
There’s no good way to hold this kind of
meeting, but generally it’s best just to be direct. Simply give the news, which
shouldn’t come as a surprise after all the warnings you’ve given previously.
Give a clear explanation of the reasons for the dismissal and explain what will
After this, the steps to follow are pretty
much the same as those above in sections 4 and 5. Tie up all the administrative
things, and hold an exit interview. The questions you ask in the exit interview
will be different, but it’s still important to have it. Understanding what went
wrong from the employee’s point of view may help you to avoid similar problems
Follow the Law
Employment laws vary by country, and in
some places there may be additional rules in place to do with the exact series of
steps involved, the information you have to give to employees about their right
to be represented by a trade union, and so on. So make sure you research your
local laws and do everything by the book.
In this tutorial, you’ve learned how to handle
the painful scenario in which an important employee wants to quit. We’ve also
covered the difficult situation of having to fire someone for poor performance.
You’ve learned about making counter-offers,
arranging the handover, doing the paperwork and other administrative details,
and running an exit interview. And you’ve learned the steps to follow to document poor performance and then terminating someone’s job.
In the next part of this Complete
Small Business HR Guide, you’ll learn how to deal with some of the worst HR
issues in small business. See you again soon!