If you have a problem employee, you have but two choices: try to coach them to be better, or get rid of them. When you finally do fire them, chances are you'll wonder what took you so long.
Steps
Provide a job description the employee signs off on to prove they have had their exact duties explained to them.
Discuss with employees any behavior that is immediate grounds for termination.
Evaluate employee work at least once a year and document deficiencies in their performance versus your expectations or their actual job requirements.
Know your employer's rules about firing someone, as there may be specific steps you are required to take in order to actually fire someone - even if they are not doing their job.
Be sure to communicate their performance problems as soon as you are aware of them, and coach them on how to improve.
Have the employee sign some sort of document outlining the conversation in order to cover yourself, it should specifically state that they do not necessarily agree but that they have been told they are not being effective in their job. Outline specific improvements / changes required in order for them to keep their job and give them clear deadlines as to when these improvements / changes must be seen by. Also be clear that the next stage is firing so they sign stating they have been told of the consequences of not changing during this conversation.
If they continue to underperform, be sure to make them aware that they must improve if they want to continue in this job.
Make a plan on how you will proceed without them. Think about their responsibilities and be ready to assign them to someone else.
Call them into your office or a conference room. Be sure to choose somewhere private.
Tell them the purpose of the meeting within 30 seconds of them entering the room. If you have done your job properly they will not be surprised, and you will only torture them by drawing it out.
Tips
Be sure you have followed your employer's required steps for firing someone.
Document the course of events to prove you had AT LEAST one conversation with this person and have given them at least one opportunity to correct the problem BEFORE firing them. This is the absolute minimum you are required to do, but most employers go by a "three strikes" rule unless the offense is serious in nature.
Question whether the entire problem is a bad employee, or whether your management skills have something to do with their low performance.
It may be best to do it on a Friday, so they do not cause disruption during the week.
How you handle this termination will define how other employees think of you and their job. If you are unfair or arbitrary, they will think they could be next. If you call security and make them surrender their keys and march out immediately (if there is no legitimate threat to the business) they will think you're a jerk. Remember other employees will have been friends with this person.
Warnings
You should consult a lawyer or understand employment law in your state to be sure you comply and are treating the employee fairly.
Consider this employee may try to sue you for discrimination.
If you do not have adequate documentation such as employee signatures on job descriptions, performance appraisals, etc then your organization may lose any lawsuit filed by disgruntled employees