First, make sure you have your employee status setup, go to MANAGE MY BUSINESS->MANAGE EMPLOYEE STATUS and add as many status as you need, typical ones are ‘No longer employeed’ and ‘Leave of absence’.
Second, in the employee profile, in the ‘General’ section, there is a Status section, set this to the new status. Note that only Active employees can punch in and out, and show up in scheduling and timecards.