Well, if your business is thriving and you have no interest in seeing it grow, and you don't mind the financial loss that you are suffering each and every day due to his bad habits and erratic work product, keep him.

If not, lose him. But not before you build a file against him regarding his chronic tardiness and inferior work performance. What does your written personnel policy (the one that was distributed to your employees during their first day of work) say in regard to this situation?