At some point, every small business owner faces a hard conversation: an employee who used to be great is now struggling, or a new hire isn’t hitting the mark. Before you start thinking about termination, there’s a smarter move. A performance improvement plan, or PIP, gives that employee a documented road map back to solid footing. Done right, it protects your business legally, gives the employee a fair shot, and saves you the cost and hassle of replacing someone who might just need better direction.
Here’s how to write one that actually works.
What Is a Performance Improvement Plan?
A performance improvement plan is a formal, written document that spells out where an employee is falling short, what specific improvements are expected, and a timeline for making those improvements. It’s not a punishment. It’s a structured conversation on paper.
A good PIP includes:
- A clear description of the performance problem
- Specific, measurable goals the employee must meet
- A realistic timeline (usually 30, 60, or 90 days)
- Resources or support you’ll provide
- Consequences if the goals aren’t met
That last point matters. A PIP without consequences isn’t a PIP. It’s a suggestion.
When to Use a PIP (And When Not To)
A PIP is the right tool when an employee’s performance problems are fixable with guidance and time. Think: missed deadlines, quality issues, attitude problems, poor attendance patterns, or a failure to meet clearly defined goals.
A PIP is not the right tool for:
- Serious misconduct (harassment, theft, fraud) — those require immediate termination, not a 90-day plan
- Situations where you’ve already made up your mind — using a PIP as paperwork cover for a decision you’ve already reached is dishonest and legally risky
- Brand-new employees still in their training window — give them a chance to learn before you formalize anything
If you’re unsure whether the situation calls for a PIP, ask yourself: If this employee fixed the specific problems I’ve identified, would I be glad they stayed? If the answer is yes, a PIP makes sense. If the answer is no, you’re past the PIP stage.
Step 1: Document the Problem Before You Write a Word
Your PIP is only as strong as your documentation. Before you open a blank document, pull together everything that supports the performance concern:
- Specific examples with dates (not general impressions)
- Missed metrics or targets
- Previous verbal warnings or coaching conversations
- Customer complaints, if relevant
- Any prior written feedback
Vague PIPs fail. “Your attitude needs to improve” is not a performance improvement plan. “On three documented occasions in June, you responded to customer inquiries with a dismissive tone, resulting in two escalated complaints” — that’s the kind of specificity that holds up.
If you’ve been tracking key performance indicators for your team, this step gets a lot easier. If you haven’t, now is a good time to start. Read our guide on how to use KPIs to run a smarter small business for a framework you can put in place going forward.
Step 2: Write the PIP Using a Simple Structure
You don’t need a lawyer to write a PIP. You need clarity. Use this structure:
Section 1: Employee Information
Name, position, department, date of PIP, and the period covered.
Section 2: Description of Performance Issues
Write this in plain, factual language. Describe what the standard or expectation is, and how the employee’s performance has fallen short. Use specifics: dates, numbers, examples. Avoid loaded language like “lazy” or “bad attitude” — stick to observable behavior.
Example: “The expected response time for customer service tickets is 4 business hours. Between May 1 and June 30, 2025, [Name]’s average response time was 11.3 hours, as documented in our helpdesk system.”
Section 3: Goals and Expectations Going Forward
This is where you flip from the problem to the solution. What does “improved performance” actually look like? Make every goal SMART: specific, measurable, achievable, relevant, and time-bound.
Example: “By August 31, 2025, all customer service tickets must be responded to within 4 business hours. No more than 2 exceptions are allowed during the review period.”
Section 4: Support and Resources Provided
Document what you’re doing to help the employee succeed. This might include additional training, a mentor or buddy, clearer workflow documentation, more frequent check-ins, or access to tools they’ve been missing. This section protects you if things go sideways — it shows you gave them a real shot.
Section 5: Review Timeline and Check-In Schedule
Specify when you’ll formally review progress. For a 90-day PIP, consider check-ins at 30 and 60 days. Don’t set a PIP and disappear. Regular check-ins keep both parties accountable and give you an opportunity to course-correct early.
Section 6: Consequences
State clearly what happens if the goals are not met: written warning, further disciplinary action, demotion, or termination. Be direct, not threatening. This section is not about scaring the employee. It’s about honesty. They deserve to know what’s at stake.
Section 7: Signatures
Both you and the employee sign the document. Some employees push back on signing. You can note in writing that the employee received and reviewed the PIP even if they declined to sign. Do not skip this step.
Step 3: Have the Conversation Before You Hand Over the Document
A PIP should never be a surprise. Before you put the document in front of someone, have a real conversation. Explain what you’ve observed, why it’s a problem, and that you’re issuing a formal PIP. Give them a chance to respond before the ink dries.
Some employees will tell you things you didn’t know: a personal crisis, a miscommunication about expectations, a workflow problem that nobody flagged. That information may not change the plan, but it might change how you approach the support section. A PIP conversation that goes both ways is more effective than one that’s handed down from on high.
This also connects to building a stronger team culture overall. If you’ve already put thought into things like reducing turnover and building employee engagement, PIPs become less common because problems get caught earlier. Check out our piece on how to reduce employee turnover at your small business for upstream strategies that complement this process.
Step 4: Manage the Review Period Actively
Issuing a PIP and walking away is a mistake. The review period is your opportunity to see whether the employee is capable and willing to improve. Be available. Follow through on the support you promised. Hold the check-in meetings you scheduled. Document everything.
Keep a running log during the PIP period: dates, what you observed, conversations you had, progress or lack of it. If you need to move toward termination at the end of the period, that log is your paper trail. If the employee improves dramatically, that log becomes a positive record you can reference at their next performance review.
Step 5: Close the Loop — Either Way
At the end of the PIP period, make a formal decision and document it. If the employee has met the goals: acknowledge it in writing, note that the PIP has been completed successfully, and make clear what the ongoing expectations are. Don’t let it linger with no formal close.
If the employee has not met the goals: follow through on the stated consequences. Failing to act after a PIP undermines your authority and your legal position. Courts and labor boards look unkindly on employers who issue performance improvement plans, don’t enforce them, and then try to terminate for the same issues months later.
A Note on Legal Considerations
While a well-written PIP provides meaningful legal protection, employment law varies by state and situation. If you’re managing a particularly complex case — a long-tenured employee, a potential discrimination claim, or a unionized workforce — it’s worth a call to an employment attorney before you issue the plan.
The U.S. Department of Labor offers guidance on worker rights and employer obligations that can help you stay on the right side of federal requirements: dol.gov/general/topic/termination.
You can also review the SBA’s resources on managing employees: sba.gov/business-guide/manage-your-business/manage-employees.
The Bottom Line
A performance improvement plan is one of the most humane tools in a small business owner’s HR toolkit. It says: I’m not giving up on you yet, but we have to be honest about where things stand. That kind of directness — delivered with documentation and structure — protects your business, treats your employees with respect, and gives everyone a chance to get back on track.
If you use checklists to keep your operations sharp, you already understand the value of clear, written standards. The same logic applies here. For more systems to help you run a tighter ship, see our guide on how to use checklists to run your small business more efficiently.
The best small businesses are not just good at selling — they’re good at managing. A PIP done well is a sign of a business that takes people seriously enough to have hard conversations and back them up with a plan.
Want more plain-English guides for running a sharper small business? Join the Hustler’s Library community free at hustlerslibrary.com/join-free/.
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