Although you as the employer are completely justified in terminating a problem employee, be compassionate and sensitive. Despite previous warnings about possible termination, the actual experience is always shocking and unpleasant. Be sure that the grounds for termination are clearly stated and that you limit yourself to facts that can be supported by written documentation. Also, inform the employee fully of his or her rights, such as temporary continued coverage by the group health insurance policy. Record all pertinent acts--for example, why the employee was fired, how many warnings had been issued, what compensation, if any, the employee is entitled to receive--in the employee's personnel file; this will protect you from any future legal action taken by a disgruntled employee.

Excerpted from Starting a Home-based Business