Capability management policy template
A free, ready-to-edit capability policy template for Australian workplaces. Manage genuine underperformance and ill-health with a supportive, structured process — clear standards, training and reasonable adjustments, improvement timeframes and procedural fairness — kept separate from misconduct. No signup required.
Capability management policy
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By downloading, you agree to our template disclaimer
This capability policy template reflects Australian Fair Work and work health and safety standards at the time of publication and is provided as a general guide to adapt for your business. Capability matters can intersect with disability discrimination and workers compensation obligations — seek independent advice for complex cases or potential dismissals. It does not constitute legal, HR, or professional advice and should not be relied on as a substitute for advice specific to your business, workforce, or circumstances.
Why your workplace needs a capability policy
Sometimes an employee falls short of the standard not because they won’t do the job, but because they can’t — a genuine gap in skill, aptitude, qualifications or, in some cases, ill-health affecting their ability. That is a capability issue, not misconduct, and it calls for a supportive, corrective response rather than discipline.
A capability policy sets out a fair, consistent framework for these situations. It explains how concerns are identified, what training, coaching and reasonable adjustments the business will provide, and how progress is reviewed against clear benchmarks and timeframes — typically beginning with an informal discussion before any formal stage. This protects the employee’s right to a genuine opportunity to improve, and protects your business with a documented process.
Under Fair Work, dismissing someone for poor performance without clear expectations, adequate support and a reasonable chance to improve can amount to unfair dismissal. A capability policy sits alongside your broader performance management policy, and storing it in your HR software with employee acknowledgements shows every worker understood the standards expected of them.
What a capability policy should cover
The essentials of a fair, supportive framework
Capability vs misconduct
The difference between can't (capability) and won't (conduct) — and why each is handled differently.
Standards & expectations
The performance standards required for the role and how they are communicated.
Support & training
Coaching, retraining and reasonable adjustments offered before any formal action.
Improvement plan
A structured plan with measurable goals, support and realistic timeframes.
Review & monitoring
How progress is assessed at each stage and how often.
Outcomes & decisions
Redeployment, an extended plan, or formal action if capability cannot be restored.
What's included in this template
A complete framework for managing capability issues fairly and supportively
Purpose & scope
Why capability management matters, and which employees and situations it applies to.
Policy statement
The commitment to address performance promptly, fairly and with support.
Capability vs conduct
Distinguishing genuine performance and health issues from misconduct.
Identifying capability concerns
How concerns are recognised, assessed and the root cause established.
Informal discussion
The first, supportive conversation about expectations and support.
Support, training & adjustments
The development and reasonable adjustments the business will provide.
Capability improvement plan
A formal plan with goals, support, benchmarks and timeframes.
Formal stages & review
Phased meetings and how progress against the plan is reviewed.
Ill-health capability
Handling long-term illness or injury affecting capability fairly.
Outcomes & documentation
Possible outcomes, record-keeping and employee acknowledgement.
Running a fair capability process
Procedural fairness protects the employee — and your business
Keep capability separate from misconduct
Capability is about a genuine inability to meet the standard — a lack of skill, aptitude, qualification or, sometimes, ill-health. Wilful or deliberate failure to perform is conduct, handled under your misconduct policy. Treating a capability issue as discipline undermines fairness and your legal position.
Consider reasonable adjustments first
Where ill-health, injury or a disability affects capability, you must consider reasonable adjustments and a return-to-work plan before concluding someone can’t do the job. This intersects with disability discrimination duties and calls for careful, well-documented handling.
The phased capability procedure
Informal discussion
Raise the concern early, clarify expectations and agree initial support.
Improvement plan
Set measurable goals, the support provided and a realistic review period.
Review progress
Meet at agreed points to assess progress fairly and adjust support.
Decide the outcome
Confirm improvement, extend, redeploy, or move to formal action.
Document every conversation, the support provided and each review. If capability can’t be restored, options may include redeployment, an extended plan, or — as a last resort after a fair process — termination confirmed in a warning letter or formal record.
A structured capability improvement plan gives the employee a clear, documented path and gives you evidence of a fair process. For the broader picture, see our performance management feature and the Fair Work guidance on managing underperformance referenced below.
Who should use this template?
Any Australian business that wants to manage underperformance fairly
Especially valuable for managers and supervisors, who are usually first to notice a capability concern and must respond consistently.
Compliance resources
Official Australian guidance on managing underperformance and capability.
Manage your policies the easy way
RosterElf helps Australian businesses store policies, capture employee acknowledgements at onboarding and keep an audit trail — so you can show a fair, documented process.
Related guides
Run a fair capability and performance process
Related templates
Build out your performance & employment framework
Performance management policy
The broader framework for setting standards and managing performance overall.
View templateMisconduct policy
The separate process for handling wilful breaches of conduct, not capability.
View templatePerformance improvement plan (PIP)
A structured plan with goals, support and timeframes to document improvement.
View templateCapability policy FAQ
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A capability policy is a formal framework for managing and improving performance when an employee can’t meet the required standard due to a genuine lack of skill, aptitude, qualifications or, in some cases, ill-health. Unlike a disciplinary policy, which deals with wilful misconduct, a capability policy is supportive and corrective: it identifies the root cause, provides support such as retraining, coaching or reasonable adjustments, and sets measurable benchmarks and timelines — typically beginning with an informal discussion before any formal stage.
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Capability is about “can’t” — the employee lacks the skill, knowledge, ability or health to perform the role. Misconduct is about “won’t” — the employee chooses not to meet the standard. The distinction matters because capability calls for support and training, while misconduct is handled under a misconduct policy and may warrant disciplinary action. Treating one as the other risks an unfair process.
Before you download
General information only — not legal advice
This document is a general HR template provided for informational purposes only. It is not legal advice and may not reflect the latest changes in legislation or apply to every workplace situation. RosterElf Pty Ltd and the template provider accept no liability for any loss arising from reliance on this document. Users should seek independent legal advice and customise the template to ensure it complies with all relevant laws, awards and workplace requirements.