Students develop handwriting skills at vastly different rates, and it's important to respect this. If you want to grade students' handwriting progress, the most important things to focus on are:
1) Connecting the strokes with the sounds of the phonogram. Can students say the sound(s) when reading the handwritten letter, and write the letter when hearing its sound(s) with no visual reference?
2) Development of stroke-based muscle memory. Copying ability and fine-motor writing are not the best indication of true handwriting mastery. The ability to write the letter perfectly on paper is the natural long-term result of rhythmic, stroke-based muscle memory, not the starting point. Grade students on whether they are learning the strokes, not on where they are with fine-motor skill development.
3) Use a "mastered," "in progress," "doesn't know" grading scale for whether students are able to write each letter. Allow plenty of time for building mastery, especially for younger children. Some kids need lots of practice in handwriting, and that's appropriate and not a failure on their part.
Digging Deeper: More details and age-specific suggestions
It's important to address some common misperceptions about handwriting. The first of these has to do with fine-motor skills; people often assume that handwriting is inherently a fine-motor activity, and that teaching handwriting is a good way to strengthen weak fine-motor skills.
In reality, it works very well to teach and practice handwriting with large-motor movements. Later, muscle memory developed in large-motor movements transfers easily to fine-motor once the fine- motor skills are developed. And for students who have weak fine-motor skills, it is more helpful to build these skills separately, through non-handwriting activities such as playing with Legos®, while building familiarity with the handwriting strokes through large-motor practice. This keeps the handwriting practice fun and developmentally appropriate and protects children from frustration or discouragement about writing.
Another common misperception is that handwriting is primarily a visual copying activity. In reality, true handwriting mastery lies in automatic muscle memory, and the best way to develop this is to teach handwriting through explicit instruction and practice in the physical strokes for forming each letter. You might think of it having more in common with learning the steps of a dance than with an art project.
For grading, this means it is important to keep your focus on muscle-memory development, whether large- or fine-motor, and not on whether a beginning handwriter is able to put perfect letters on paper with a pencil.
We recommend avoiding grading handwriting at this stage if possible. Kids develop handwriting mastery at vastly different rates, and fine-motor skill levels vary greatly in young children, so the main focus should simply be on helping children develop familiarity and comfort with the strokes as they learn the phonograms' sounds.
Many children have not developed their fine-motor skills by the time they reach kindergarten or first grade (especially with so much use of touch screens). If students are struggling with fine-motor skills, we recommend having them strengthen these skills through non-handwriting activities such as Legos®, beads, play-dough, etc. Children this age definitely should not be graded on their fine-motor skills.
Those who need to generate some sort of grade for young children should assess whether they know the phonogram from its sounds, can do the correct strokes with large motor movements in the correct order (either independently or while the teacher says the bolded instructions), and can do so from muscle memory (not visual copying). Use a standard such as "Write the letters __, __, and __ when hearing their sounds: a) mastered b) can do with support from the teacher c) doesn't know."
Don't grade them on whether the finished product looks perfect, whether they are staying inside the lines completely, or whether they can write it on paper yet, but on whether they are demonstrating developing muscle memory for the strokes needed for each letter.
Some children who started handwriting in kindergarten may be able, after some review at the start of First Grade, to write all the lowercase letters correctly without support, and most of the uppercase letters as well, with large-motor and in some cases fine-motor movement. This would certainly be the goal.
But some kids, especially those who had very weak motor skills to begin with, will still need more time and practice, and you want to acknowledge this without faulting them for it. If some students at this stage are still writing with large-motor movements, have handwriting that is legible but not perfectly correct, or need occasional verbal reminders or modeling for how to write a particular letter, that is on target and shouldn't be a failing grade. Grade them using the standards described for kindergarten, above.
By midyear or when students are ready, grades could also reflect whether they are placing letters properly on the lines, whether they are connecting letters within words and leaving spaces between words, whether they are capitalizing first letters, etc.
Second Grade and Above
With students still learning the letters or learning a new handwriting style, grade primarily on whether they can write the letters correctly (correct strokes in the correct order) from the phonogram sounds with no visual reference, either independently or with verbal support from the teacher saying the strokes. This can be with large-motor movements if necessary.
As soon as students are developing strong muscle memory for how to write each individual letter with automaticity, grading can also indicate whether they can write the letters on paper correctly, whether they are connecting letters within a word correctly and leaving spaces between words, etc.