Simply Business homepage
  • Business insurance

    • Business Insurance FAQs

    Business insurance covers

  • Support
  • Claims
  • Sign In
Call Us0333 0146 683
Chat With UsChat support 24/7

What is a capability policy template (and how to create one)

1-minute read

Jigsaw puzzle
Catriona Smith

Catriona Smith

27 October 2023

Share on FacebookShare on TwitterShare on LinkedIn

Your capability policy helps you with performance management – because while every business hopes its employees are the best possible fit for the job, sometimes things don’t work out.

Capability for the role was cited as a factor in nine out of 10 disciplinary procedures, according to Acas. But good performance management can avoid the need for disciplinary action – and your capability procedure is at the heart of that process.

Keep reading for a quick-start guide to introducing a capability policy in your business.

What is a capability procedure in employment law?

The ‘capability’ of an employee is their ability to perform the work expected by the employer to the proper standard. A number of factors could impact capability, including skill, training, and health.

A capability policy is at the core of a good performance management strategy. Unlike a disciplinary procedure, a capability policy should encourage improving the employee’s performance so it meets the company’s expectations.

However, a capability policy will also explain that actions (including dismissal) may be considered if performance does not improve.

Why does my business need a capability procedure?

The overarching aim of a capability procedure is to help an employee improve their performance. It's about encouragement and support, as opposed to the punishment involved in disciplinary proceedings.

And by having a capability policy, you can demonstrate to your employees that you're willing to take their concerns seriously, and that you won't immediately resort to punitive actions in the event of underperformance. It also signals that you're sensitive to each employee’s unique circumstances, including health, training and related concerns.

But a capability policy also protects employers. While it should encourage and support, it also needs to make clear that continued underperformance may end in dismissal.

What to include in a capability policy template?

A capability policy template ususally includes:

  • an outline of the purpose of the policy, and reassurance that it's intended to support the employee
  • an explanation, however, that continued failure to achieve the required standards could result in disciplinary action or dismissal
  • details of informal counselling meetings that will take place when a manager has concerns about performance
  • an explanation that a formal capability procedure will be triggered when concerns or targets raised in the informal session have not been met or sustained
  • an explanation that a formal capability procedure could be triggered in circumstances where there has been a fall in performance significant enough to warrant it without an informal warning
  • details of the formal procedure: first formal warning; final written warning; and dismissal
  • information on how an employee can appeal against a warning or a decision to dismiss, and details of how an appeal will be handled

Are you creating a capability policy for your small business? Let us know how you get on in the comments.

Is your business insured?

We have 800,000 UK policies plus a 9/10 satisfaction score. Why not take a look at our expert business insurance options - including public liability insurance and professional indemnity - and run a quick quote to get started?

Start your quote
Photo: Tinnakorn/
Catriona Smith

Written by

Catriona Smith

Catriona Smith is a content and marketing professional with 12 years’ experience across the financial services, higher education, and insurance sectors. She’s also a trained NCTJ Gold Standard journalist. As a Senior Copywriter at Simply Business, Catriona has in-depth knowledge of small business concerns and specialises in tax, marketing, and business operations. Catriona lives in the seaside city of Brighton where she’s also a freelance yoga teacher.

We create this content for general information purposes and it should not be taken as advice. Always take professional advice. Read our full disclaimer

Find this article useful? Spread the word.

Share on Facebook
Share on Twitter
Share on LinkedIn

Keep up to date with Simply Business. Subscribe to our monthly newsletter and follow us on social media.

Subscribe to our newsletter


HomePopular articlesGeneral businessGuestInsuranceLandlordLandlord resourcesLegal and financeMarketingNewsOpinionProperty maintenanceTradesmanCovid-19 business support hub


Public liability insuranceBusiness insuranceProfessional indemnity insuranceEmployers’ liability insuranceLandlord insuranceTradesman insuranceSelf-employed insuranceRestaurant insuranceVan insuranceInsurers


About usOur teamAwardsPress releasesPartners & affiliatesOur charitable workModern Slavery ActSection 172 statementSocial mediaSite map

Customer support

Contact & supportPolicy renewalMake a claimProof of policyComplaintsAccessibility


6th Floor99 Gresham StreetLondonEC2V 7NG

Northampton 900900 Pavilion DriveNorthamptonNN4 7RG


Careers at Simply BusinessTech careersCurrent opportunities


BenefitsRefer a friend


Terms & conditionsPrivacy policyCookie policyVuln Disclosure policy


Knowledge centreOpinionsMicrosites

© Copyright 2024 Simply Business. All Rights Reserved. Simply Business is a trading name of Xbridge Limited which is authorised and regulated by the Financial Conduct Authority (Financial Services Registration No: 313348). Xbridge Limited (No: 3967717) has its registered office at 6th Floor, 99 Gresham Street, London, EC2V 7NG.