Although running your own business is rewarding, managing employees can be challenging. Underperformance setbacks are an unfortunate part of a business that managers occasionally face. When employees consistently struggle in their current roles, a demotion may be necessary.
What Is a Demotion Letter?
A demotion letter is an official document informing an employee of management’s decision to demote them. For example, downgrading or reducing an employee’s duties, work title, or role in the company is considered a demotion.
This notification should be short and formal. Only include the essential details of the decision to create an official record of the employee’s status change within the company.
When to Use a Demotion Letter
While it’s never ideal to demote an employee, it allows underperforming team members to make improvements and show they still have the potential to contribute to the company’s success. Some reasons you might need to demote an employee include the following:
- Performance struggles
- Behavior or conduct issues
- Company downsizing or restructuring
- An employee-requested reduction of duties
Even when the employee knows the demotion is coming — or requests for it, in some cases — it’s crucial to follow the formal process of informing the employee with a demotion letter. Always use a demotion letter when:
- You need to notify an employee of a demotion
- You want to have an official record of the demotion in the employee’s files
- You are following company protocol to create grounds for firing an employee
How to Demote an Employee
Managers and business owners should use clear communication to ensure the employee understands the reasons for the demotion, what changes to expect, and the responsibilities of their new role. Also, creating an official record of the demotion with a formal letter may help you avoid legal complications  from disgruntled employees.
Whatever the reason for the demotion, a careful approach can help the employee feel valued and eager to make improvements. Take these steps:
- Document the demotion – A demotion letter, including a voluntary one, can serve as official documentation of the change.
- Inform the employee – A private, in-person meeting works best to notify an employee  of a demotion. Not only does this give you more control over the message delivery, but it also lets the employee ask questions and get immediate answers.
- Involve human resources – If you have an HR department, have a manager or representative present in the meeting to help you avoid common demotion mistakes.
- Transition – Ensure everything is in place for the employee to pass on pending tasks and feel supported in the new role.
How to Write a Demotion Letter
Demoting an employee is often complicated and awkward for employers. However, there are ways to deliver the news that doesn’t wholly deflate morale. To write an effective demotion letter that covers all of your bases, here are crucial steps to follow:
1. Use a Formal Tone
A demotion letter should state facts using a professional and direct tone. There should be no sarcasm, humor, or other attempts to lighten the situation.
2. Make It Clear and Concise
Much like an employment termination letter, your demotion letter should be straightforward to avoid misunderstandings that could lead to legal issues. Avoid small talk or fluff that doesn’t directly address the demotion.
3. List the Reasons for the Demotion
Provide the employee with the reasons for their demotion, such as poor performance, workplace violations, or elimination of their position. If applicable, list previous warnings, disciplinary actions, or performance evaluations that support the decision.
4. Provide a Description of the New Role
Include a short description of the employee’s new role, job title, and responsibilities. Schedule a separate meeting to discuss it in more detail.
5. Include New Salary Details
Notify your employee of how this change will affect their pay. State the person’s new salary and when the new rate becomes effective. If applicable, also mention how the demotion will impact employee benefits.
6. Explain the Next Steps
Give a clear explanation of what the employee should do next. If you scheduled a meeting with the employee and their new supervisor, provide those details in the demotion letter.
Demotion Letter Example
To better understand how to notify your employee of a demotion, use the guide below while drafting your own.
Demotion Letter Sample
Download our free sample demotion letter to employees to ensure you don’t miss crucial details.