What is a performance improvement plan and when does it actually help?

Performance improvement plans, or PIPs, have a reputation problem. Some employees see them as a slow march to the exit. Some employers treat them as a legal shield. For growing businesses under 100 employees, both views miss the point. A PIP only works when it is used for the right reason, at the right time, and with genuine intent.

What a PIP actually is (and isn’t)

A performance improvement plan is a structured framework that:

• clearly sets expectations
• identifies specific performance gaps
• outlines what improvement looks like
• gives the employee an opportunity to improve

A PIP is not:

• legally mandatory
• a guaranteed pathway to termination
• a box-ticking exercise
• protection against unfair dismissal on its own

Used well, a PIP creates clarity.
Used poorly, it creates evidence against the employer.

Why PIPs are misunderstood by growing businesses

As businesses grow, managers often inherit advice like:

• “You must put them on a PIP”
• “You’ll lose at Fair Work without one”
• “HR says this is the safest option”

That advice is incomplete.

Fair Work does not require PIPs.
It looks for fairness, clarity and reasonableness.

A PIP is just one way to demonstrate that.

When a PIP can genuinely help

PIPs work best when:

• expectations were unclear initially
• the role is complex or evolving
• improvement is realistically achievable
• the manager is willing to coach and support

In these cases, a PIP can:

• reset expectations
• reduce defensiveness
• document improvement efforts
• support either retention or exit

A good PIP feels like structure, not punishment.

When a PIP usually makes things worse

PIPs tend to backfire when:

• the decision to terminate has already been made
• trust between manager and employee is gone
• the performance gap is too large
• the role is fundamentally mismatched

In these situations, a PIP:

• delays the inevitable
• raises employee expectations
• increases legal exposure
• prolongs stress for everyone involved

A PIP should never be used to justify a decision that is already locked in.

The biggest mistake employers make with PIPs

The most common error is over-engineering.

This includes:

• unrealistic improvement metrics
• excessive documentation
• aggressive timelines
• legalistic language

Over-engineered PIPs often look punitive rather than supportive.

Fair Work tends to view these sceptically, especially if improvement was never realistically possible.

What a reasonable PIP actually looks like

A reasonable PIP is:

• specific
• proportionate
• achievable

In practice, this means:

• focusing on a small number of core issues
• linking expectations directly to the role
• setting clear but realistic timeframes
• documenting check-ins, not just outcomes

The goal is clarity, not perfection.

How long should a PIP run?

There is no fixed timeframe.

Reasonableness depends on:

• the role
• the nature of the performance gap
• how quickly improvement could occur
• the impact on the business

Short PIPs can be reasonable.
Long PIPs can be unreasonable.

Dragging a PIP out to feel safer often increases risk rather than reducing it.

What happens if performance improves

If performance improves and is sustained:

• the PIP should end
• expectations should remain clear
• documentation should reflect improvement

Continuing to treat the employee as “on notice” after improvement undermines fairness and trust.

Improvement should reset the relationship.

What happens if performance does not improve

If performance does not improve:

• termination may be reasonable
• the PIP supports the decision
• process clarity reduces surprise

The key is consistency.

If expectations were clear and the opportunity genuine, Fair Work is less concerned that improvement did not occur.

How PIPs interact with unfair dismissal risk

A PIP does not guarantee protection.

However, when used properly, it:

• demonstrates fairness
• shows the employee was informed
• reduces claims of surprise
• strengthens the employer’s position

When used poorly, it does the opposite.

This is why intent matters more than paperwork.

Where HR support makes the biggest difference

HR support is most valuable:

• before a PIP is issued
• when deciding whether a PIP is appropriate
• in shaping expectations and language
• in deciding when to stop

This avoids PIPs being used defensively or too late.

For growing businesses, that judgement call is often the difference between resolution and escalation.

Before putting someone on a PIP

A PIP should only be used when improvement is genuinely possible and supported.

If you’re unsure whether to coach, formalise or move toward termination, that uncertainty is usually the moment to pause and get advice before locking yourself into the wrong process.

👉 Get free initial HR advice