What's the best way to fire an employee?

I would like to be as respectful as possible.
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Based on your desire to be most kind, I am going to assume that you are terminating someone's employment because you have no other choice, likely for one of these reasons"

1. A lack of work to be done
2. A lack of skills on the part of the employee to do the work
3. Economic factors beyond your control

So, the best thing to do is to plan ahead about all aspects of terminating the employee so that it is a well organized meeting. Have a checklist that you can go through with the employee with items such as:

- Does the employee have accrued/unused vacation time? If so, will she receive pay for that?
- Are their expense report reimbursements due to the employee?
- Will the employee be able to collect on unemployment benefits?
- What's the process for receiving the final paycheck?

It's important to make a list of the items to be returned by the employee prior to issuing her final paycheck, including:

- Keys - office, file cabinets, cars
- Office/other access cards
- Company credit cards
- Cell Phone, service plan
- E-mail account, internet access or passwords
- Company equipment

Once you have all of the above matters defined, call the person into your office (or another place that is private) and have a disinterested person with you as a witness, if you can. It should be someone who the employee likes, respects or at least does not actively dislike. If you have someone who handles payroll, it might be that person.

Then, get straight to the point. Explain that due to 1, 2 or 3 (above) the decision has been made to terminate her employment, effective immediately -- which is usually best for all concerned. Say clearly that this is nothing personal and that the employee's contributions to the company have been much appreciated. Her termination is simply a necessary business decision. Then go through the checklist with the employee or have the disinterested witness do this.

If you can provide severance pay, that is a nice thing to do. Be sure that if you do that, you have a legally compliant separation agreement for the employee to sign. Kindness is as much in the manner the message is delivered as anything I've mentioned above.

Through good planning, you can make the meeting go quickly and it will be as painless as such a circumstance can allow. A haphazard termination leaves the employee with the impression that she was not important enough to be treated with respect.