Employee Termination Checklist For Small Businesses

Over the course of running your small business, your company will deal with some degree of employee turnover. In fact, the average employee turnover rate between 2021 and 2022 was 24.7%, with most employees' tenures expected to last for 4.1 years.

Losing an employee requires you to do more than just post a new job opening and fill the role; it's a multi-step process. And that process should include a termination checklist.

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Using a checklist can help your company—and the employee that's leaving—transition smoothly. But what should you include in a checklist? What does a sample checklist look like? And what are some tips for creating a successful termination process?

What Is the Purpose of a Termination Checklist?

A checklist helps small business owners and human resource departments manage employee termination by ensuring they take care of all the necessary steps. 

This can help you maintain accurate records, justify terminations, and defend against unfounded unemployment insurance claims and/or lawsuits.

Sample Employee Termination Checklist

But what does an employee termination checklist look like—and what should it include? The template below is an effective tool for your small business, though you can also write your own with the advice we've included later on. Just click "Make a copy" to start editing this one.

You can also copy the sample below (it's the same as the one above, just in a different format).

What to Include in Your Employee Termination Checklist

Creating (and following!) a checklist can help you manage an employee's exit professionally, benefiting both your business and the departing worker. For your checklist to be effective, include these steps:

1. Talk to the Employee

Employees can leave your business in one of two ways:

• Suddenly and without prior warning (like quitting, getting terminated, or being a no-call, no-show)
• After a notice period (like retiring, starting a new job, or moving)

Typically, this includes a formal notice that the employee is moving on—either a termination notice (if the employee is getting fired) or a resignation notice (if the employee is quitting). 

In either case, the steps on your termination checklist should be:

• Ask the employee when their last day will be (or tell them when their termination is effective).
• Schedule an exit interview.
• Outline the employee's remaining responsibilities (like training a replacement, continuing to show up to work until their last day, or the expectation to honor a non-compete clause in their contract).

2. Notify Relevant Departments and Teams

Employee termination can have a major impact on your business—and the more departments and teams they're involved in, the bigger the potential impact. 

As such, it's important to make sure that each impacted team/department is on the same page and can prepare for the employee's departure (for example, by collecting any final work or finding an internal replacement to cover the departing employee's job duties).

The solution? Inform relevant department heads and teams about the termination. This can help with scheduling issues (especially if the employee is leaving without notice), avoid business interruptions (like a client waiting to have a meeting with the terminated employee), and get paperwork started.

3. Conduct an Exit Interview

Exit interviews can give you valuable insight into how your company is functioning from an employee's perspective. 

While an exit interview isn't always necessary (or appropriate—for example, if an employee quits showing up or is overly disgruntled), it can be a way to get helpful, honest feedback—as an employee who's already leaving can feel free to speak openly without worrying about impacting their job or harming their chances for a promotion.

During an exit interview or termination meeting, ask the employee for feedback about:

• Why they're leaving
• If any specific challenges or issues contributed to the employee wanting to leave
• What the employee enjoyed about working for your business
• How the employee feels about your company's leadership and management
• Your company's benefits and compensation
• The workplace environment and company culture
• Suggestions for the business overall

You can use the employee's answers to make changes and improve your business, potentially boosting employee engagement (and reducing turnover). Plus, you can end the relationship on a positive note by wishing the employee luck in their new role.

4. Cancel Access

Typically, employees have access to sensitive data and buildings or sites—for example, your office or job site, files, and network. And when you terminate an employee, if you forget to revoke their access, it can become a security risk and a legal liability.

Upon termination, make sure to cancel the employee's access to any sensitive data and networks, like customer files, cloud workspaces, and email accounts. 

If they use a key card or code to enter your building (or other properties), be sure to deactivate their card and/or code so they no longer have access to the office.

5. Collect Your Company Property

If your company provides any property to your employees, ask for it to be returned on the employee's last day. This may include:

• Access cards, keys, or security badges
• Company vehicles
• Computers, laptops, and other devices (like cell phones, tablets, and other tools)
• Company credit cards
• Company-owned files

And if the employee works remotely? Provide a timetable for returning any business property (for example, two weeks following the employee's last day)—and make it easy for them to do so by covering shipping costs and/or sending a pre-paid shipping label.

6. Discuss (and End) Employee Benefits

Employee benefits typically end on an employee's date of termination or at the end of the month in which they quit. However, in some cases, an employee is entitled to certain rights after losing their job, including:

• Continued healthcare coverage through COBRA: The Consolidated Omnibus Budget Reconciliation Act, which lets an employee pay to continue their group health insurance coverage for 18 to 36 months.
• Unemployment benefits: Temporarily pay a portion of an employee's income when they lose their job through no fault of their own.

An employee might also have other benefits, like life insurance or a retirement plan, or be entitled to severance pay or unused vacation time. 

To streamline this, provide departing employees with benefits letters that tell them how they can continue coverage (for example, through COBRA or by converting group life insurance coverage to a personal policy) or roll over their retirement funds. 

You should also let them know when they can expect their final paycheck and the payout for any unused paid time off (if your company pays—or is required to pay out—PTO upon termination).

(For some companies—particularly those that employ 20 or more employees, though your state may have different laws—discussing certain benefits is legally required at the time of termination.)

What Paperwork Is Required When Terminating an Employee?

Termination paperwork can include:

• A termination notice or resignation letter
• A severance agreement
• Benefits letters (some of which may be legally required depending on state law and/or the size of your company)
• Unemployment information
• State-specific information
• Final compensation information/paycheck
• A change of address form (with updated contact information and an address to send the employee's W-2 form during tax season)

7. Calculate and Pay Out Final Pay

Departing employees are entitled to any earned wages—even if they don't finish out the pay period. 

After an employee is terminated, calculate their final pay and determine when you need to pay it, which can depend on your state's laws and company policy (which should be outlined in the employee handbook).

Make sure to account for all of the employee's earnings, including wages for the hours they worked, accrued PTO, bonuses, commissions, and any reimbursements they're still owed—and then include all of those earnings in their final paycheck.

8. Update Records

After firing an employee or accepting their resignation, you need to update your business records. This includes:

• Removing the employee from your payroll
• Canceling employee benefits
• Organizing and filing employee records
• Documenting the termination letter/resignation, any disciplinary actions/performance issues, and past performance reviews

The reason? In addition to maintaining accurate business records, keeping and organizing these files can help you defend against potential lawsuits, contest an unemployment insurance claim (if the former employee willingly quit), and/or otherwise justify termination.

(Just make sure not to get rid of important files; for example, you need to keep payroll records for at least three years and employment tax records for up to four years.)

Tips for a Successful Termination Process

Employee terminations aren't always amicable. They can also be difficult to manage, both administratively and emotionally. In addition to following a checklist, tips for a successful termination plan include:

• Remain professional: Remain courteous and professional when interacting with a terminated employee; stay focused on the facts (like disciplinary actions taken in the lead-up to termination) and don't berate, insult, or punish the employee (especially if they'll remain employed for the duration of their notice period).
• Work alongside your human resources team: If your company employs an HR department, work with them to manage termination. Ensure a member of your HR team is present when you let the employee know they're being fired to ensure you have a witness and to abide by the company policy and any relevant laws.
• Respect the departing employee's privacy: If and when you inform your team about an employee's departure, remain vague on the details and keep things professional to avoid disparaging or slandering the employee.

What Is the Proper Way to Terminate an Employee?

The proper way to terminate an employee is to:

1. Identify a reason for termination (like performance-related issues, job abandonment, violating company policy, or breaking the law)
2. Follow a checklist
3. Keep the termination meeting brief and professional
4. Include an HR representative in the meeting and process
5. End on a good note (by remaining compassionate and courteous or celebrating an employee's tenure)

Use a Checklist to Keep Termination Smooth

As a small business owner, you'll inevitably have to terminate an employee at some point—whether for cause or because the employee is transitioning to a different role (or retiring altogether!). 

And the process can be complex, with some steps required by law. Creating and following a termination checklist can help you streamline the process for both you and your former employee, giving them the information they need to move on from your company while ensuring your business abides by the law and maintains accurate records.