When should you fire an employee?
When you can't answer the question "would I hire this person again today?" with a wholehearted yes. Anything that isn't a clear yes is a no you haven't said out loud yet. Keeping someone who doesn't fit lowers the bar for your whole team.
Why is keeping the wrong employee so damaging?
Because your team doesn't look at your words but at what you let slide. If someone stays who performs below the bar without consequence, the floor sinks for everyone. Your good people feel it first and eventually leave.
How do you fire someone in a decent way?
Have the conversation honestly and directly, without the compliment sandwich. Say what doesn't fit, give the other their dignity and make concrete how you wrap it up. That someone doesn't fit you doesn't mean they're worth nothing, only that they belong somewhere else.
What is a settlement agreement?
A settlement agreement is an arrangement in which employer and employee jointly settle the end of the employment, outside of court. In the Netherlands it's the most used route when parting ways. Get properly informed about the details. This isn't legal advice.
Isn't firing an employee bad for team morale?
Usually the opposite is true. Keeping someone who doesn't fit weighs the mood down, because your best carry the extra work without it having any consequence. Parting ways cleanly actually shows that the standard matters, and that gives the rest air.
How do I know if it's the person or me as a leader?
Start with yourself: have you made the expectation clear and given the chance to fix it? If not, that's your work first. If that has happened and the yes still doesn't come, then it's about fit, and keeping them on isn't kindness but delay.