I agree that first step is to talk to them. Maybe take some of the points from answers here about "what should I do when I run out of work" and give them as advice. It may be necessary to point out that unless they do focus more on the needs of the business they are going to get a poor performance review and will be prime candidates to be let go next time there's a question about the headcount budget. As manager, it is your job to set expectations and push for them to be met, and preferably exceeded.

Is he a new grad ? This looks like the behavior of some new grads. Perhaps, you should schedule a formal meeting with him, and write down detailed guidances or specific expectations for him to let him know exactly what is expected from him. This way, he would realize that he must improve.

How experienced is he in similar working environments to yours? How long has he been there? How long would you say the expected onboarding time of an employee is in your company?

@Greendrake If the employee does not report back to you when they finished a task, despite being asked too, that is not a management failure. The only management failure would be to not ask them again and then discipline them if they do not do what is asked of them. A manager that asks "are you done yet, should I assign you another task?" every hour is really a not a good role model.

He should have a backlog of work to do. If the deliveries are less than expected, make the actual requirements explicit.

@nvoigt From the OP's wording I don't see that "the employee does not report back to you when they finished a task, despite being asked to". I assume that he reports when finishing a task (perhaps, by assigning it "done" status in the tracker system) — as opposed to making the impression that he is still busy on it when it's already done.

Well, I guess it would be nice if the OP clarified that. From the post I got the impression that the employee is very passive. To me, when you are done and you don't have another task, you ask your boss what to do next. Just assigning a state in the system and then going off to do something of your own choosing is "not report back when they finished".

How much is he getting paid for his job? Compared to the market or within the company?

Pay is irrelevant - an employer has to bring a specific level of motivation, or he is not fulfilling his contract. This is not a motivation as much as an ethics question. Thanks, bad fit, please go work for the competition.

Praising the employee does not involve in office politics, but you wish he would take more ownership in "bigger business problems". I see a contradiction, tackling real business problems could require it to some degree.

@TomTom Motivation is irrelevant, motivation is not included in the contract, work is. And if the employee is performing the work that is assigned to him without issues I don't see why he would be a "bad fit" because he does not share your enthusiasm.

Well, then you simply have never worked in a team enthusiastic about his work. Simple like that. You root out bad apples - or morale WILL tank.

Were there any signs of these issues during the interview? Particularly the communication issue? If he gave one word or short sentence answers during the interview, then this would be expected during his employment. If he was effusive in the interview but backed into a shell in "real life", then he's a good actor and deserves some credit for that. Did he indicate that he like to dig into issues, or just preferred to do "the task at hand"? Maybe he's a bad fit because the interview process didn't root out these characteristics that are considered undesirable.

Is the person's net impact negative or positive? Basically the time saved by having this person do the work that they do vs. the time spent by other people making tasks more explicit or cleaning up after a task that fulfilled the letter of the requirement but not the spirit...

If they're doing what they're paid to do, then what's the problem? If they're not doing what they're paid to do then be specific with them rather than talking in vaguities

If he's very young, first job kind of thing, cut him some slack. It's just work ethic that hasn't been learned yet. Otherwise, cut him loose.

You need to think about what you want this employee to do. If you are expecting some thoughtful insights from him instead of action on specific tasks, you need to give him the guidelines

If your thoughts match your words, how could you not have a problem? Can you look again at "I currently have a direct report who I'm struggling with. He has some good attributes, but is not really stepping up to the level we expected of him when we hired him and when he was in onboarding." Can you translate that into real English?