Handling Employee Misconduct in SMEs: Legal and Practical HR Steps

Introduction--

Once a candidate accepts an offer, the period between acceptance and joining becomes a critical phase in the recruitment lifecycle. This pre-joining window influences whether a candidate actually joins, how prepared they feel on Day One, and how quickly they settle into the organisation. For HR, effective pre-joining engagement and onboarding planning are essential to convert offers into confident, committed employees.

This article outlines practical approaches HR teams can adopt to manage pre-joining engagement and establish strong onboarding foundations—without overcomplicating the process.

Employee misconduct is one of the most sensitive challenges for HR in Indian SMEs. Unlike large organisations, SMEs operate with smaller teams, closer relationships, and limited buffers. A single misconduct issue can disrupt operations, morale, and even founder confidence.

This article explains how HR in SMEs can handle employee misconduct lawfully, fairly, and practically — without over-legalising issues or acting impulsively.

Understanding Misconduct in an SME Context

Misconduct in SMEs typically falls into a few common categories:

• Attendance and punctuality issues

• Insubordination or refusal to follow instructions

• Behavioural issues, disrespect, or conflicts

• Misuse of company resources

• Integrity-related concerns

HR must distinguish between performance issues and misconduct before acting.

Why SMEs Often Handle Misconduct Poorly

Common SME mistakes include:

• Verbal warnings with no documentation

• Sudden termination without due process

• Emotional reactions by founders or managers

• Treating similar cases inconsistently

These approaches expose SMEs to legal risk and damage trust.

Legal Framework Applicable to SMEs

Even small organisations are expected to follow principles of natural justice.

Key legal expectations include:

• Fair opportunity to explain

• Reasoned decision-making

• Proportionate punishment

• Basic documentation

Formal domestic enquiry may not be required for every case, but due process always applies.

Step-by-Step HR Approach to Handling Misconduct

A practical SME-friendly approach includes:

1. Fact finding – understand what actually happened

2. Classification – minor or serious misconduct

3. Show-cause notice – for non-trivial issues

4. Employee explanation – written response

5. Decision – warning, penalty, or escalation

6. Documentation – record the outcome

This approach balances fairness with speed.

Role of Managers vs HR in SMEs

Managers are closest to the issue, but HR must control the process.

HR should:

• Guide managers on appropriate action

• Prevent emotional or biased decisions

• Ensure consistency across cases

• Act as process custodian

Founders should be involved only in serious cases.

When Termination Becomes Necessary

Termination should be the last resort, not the first reaction.

Before terminating, HR should ensure:

• Past warnings or corrective actions are documented

• Misconduct severity justifies termination

• Employee has been heard

• Legal notice and dues are handled correctly

A rushed termination often costs more later.

Conclusion

Handling misconduct in SMEs requires calm judgement, basic legal awareness, and consistent processes. HR does not need heavy legal machinery — but must ensure fairness, documentation, and proportionality. Done right, misconduct handling strengthens discipline and credibility across the organisation.

Checklist: Handling Employee Misconduct in SMEs

🗹 Distinguish misconduct from performance issues
🗹 Document facts before taking action
🗹 Issue written communication for non-trivial cases
🗹 Give employees an opportunity to respond
🗹 Apply proportionate and consistent penalties
🗹 Maintain records of warnings and decisions
🗹 Involve founders only in serious matters
🗹 Close cases with clear communication

SME-Friendly Misconduct Handling Framework

Conclusion--

Effective labour law compliance depends on how well HR operations, payroll, and business processes work together. When compliance is embedded into everyday workflows, organisations reduce risk, improve accuracy, and build sustainable governance systems. HR teams that prioritise integration over isolation are better positioned to manage compliance confidently and consistently.