Capability management policy template
A supportive framework for managing employees who aren't meeting performance standards due to skill or ability gaps. Covers assessment, support, improvement plans and outcomes while maintaining procedural fairness.
Capability management policy
PDF format • Ready to download
By downloading, you agree to our template disclaimer
Why you need a capability management policy
Sometimes employees underperform not because they won't do their job, but because they can't—due to skill gaps, changing role requirements, or personal circumstances affecting their ability. This is a capability issue, not misconduct, and requires a different approach.
A capability management policy provides a supportive framework for addressing these situations. It ensures employees are given genuine opportunities to improve through training, coaching and reasonable adjustments before any adverse action is considered.
Under Fair Work, dismissing someone for poor performance without providing adequate support, clear expectations, and a reasonable opportunity to improve can be unfair. A capability policy demonstrates you've taken the right steps and gives you documentation to defend your decisions if challenged.
Key elements your policy should cover
Essential components of effective capability management
Capability vs misconduct
Understanding the difference between can't and won't.
Performance gaps
How to identify and assess capability issues.
Support and training
What support must be provided to address gaps.
Improvement plans
Structured plans with clear goals and timeframes.
Review periods
How progress is monitored and assessed.
Possible outcomes
What happens if capability issues persist.
What's included in this template
A complete framework for managing capability issues supportively
Purpose & scope
Why capability management matters and who it applies to.
Policy statement
Core principles of fair capability management.
Capability vs conduct
Distinguishing performance issues from misconduct.
Identifying capability issues
How capability concerns are identified and assessed.
Initial discussions
Informal conversations about performance concerns.
Support and training
What support the employer will provide.
Capability improvement plans
Formal plans with goals, support and timeframes.
Review and monitoring
How progress against the plan is assessed.
Outcomes and decisions
What happens based on plan outcomes.
Documentation requirements
Records to maintain throughout the process.
Common capability scenarios
How your policy should address typical situations
Technical skills becoming outdated
Technology and industry standards evolve, and employees may struggle to keep up. Before treating this as a performance issue, consider what training and support you can provide. Your policy should include provisions for identifying skill gaps early and providing development opportunities before they become performance problems.
Role requirements changing
Sometimes the job evolves beyond what the employee was originally hired to do. When this happens, you should assess whether the employee can develop the new skills needed with support, or whether the role has fundamentally changed. Your policy should address how to handle role evolution fairly.
Health or personal circumstances
Physical or mental health issues, caring responsibilities, or other personal circumstances can affect capability. Your policy should require consideration of reasonable adjustments before concluding someone can't do their job. This intersects with disability discrimination obligations and requires careful handling.
Promoted beyond capability
Sometimes employees are promoted into roles they're not ready for. Rather than treating this as failure, consider what support can help them grow into the role—or whether a transition back to a more suitable position might be appropriate. Your policy should address how to handle these sensitive situations constructively.
Who should use this template?
Any business wanting to manage capability issues fairly
Legal disclaimer
This template is designed to reflect Australian workplace standards and Fair Work principles at the time of publication. It is provided as a general guide only and does not constitute legal advice.
Capability management processes must comply with procedural fairness requirements and may intersect with disability discrimination and workers compensation obligations. For complex situations or potential dismissals, seek independent legal or HR advice.
Regulatory sources
This template is aligned with Australian employment and performance management requirements.
Ready to support employee development?
Download our capability management policy template and create a fair framework for addressing performance gaps.
Looking for more HR templates? Browse all performance & employment templates
Store this policy and track employee acknowledgements with RosterElf's HR software.
Capability policy FAQ
- Yes. This template provides a solid foundation, but you should tailor it to reflect your specific workplace, management structure, and any applicable modern award or enterprise agreement. Ensure procedures align with Fair Work requirements for procedural fairness.
- Distribute the policy during onboarding for new employees and via email or team meetings for existing staff. Have employees sign an acknowledgement form confirming they have read and understood the policy. Using HR software with policy management can automate tracking of acknowledgements.
- Capability issues are about "can't" — the employee lacks the skills, knowledge, or ability to perform their role. Misconduct is about "won't" — the employee chooses not to meet standards. The distinction matters because capability requires support and training, while misconduct may warrant disciplinary action.
- Typically 4-12 weeks depending on the complexity of the skills required. Simple task-based improvements may show progress quickly, while complex role competencies take longer. Set realistic timeframes that give genuine opportunity for improvement. Learn more about creating a performance improvement plan.
- Yes, but only after a fair process that includes identifying the issue, providing support and training, giving reasonable time to improve, and following procedural fairness. Document all steps. Dismissal for capability without a fair process risks unfair dismissal claims. See our guide on how to terminate an employee.
Related guides
Learn more about implementing this policy
How to conduct a performance review
Step-by-step guide to running effective performance reviews.
Read guideHow to terminate an employee fairly
Fair employee termination covering legal requirements.
Read guideHow to onboard a new employee
Complete onboarding checklist for Australian businesses.
Read guideRelated templates
Complement your capability policy with these related documents
Performance management policy
Broader framework for managing employee performance overall.
View templateTraining & development policy
Framework for providing the training support capability issues require.
View templateTermination of employment policy
Process for when capability issues cannot be resolved.
View templateDisclaimer
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.