David Brent is informed by Head Office that his Slough branch of Wernham Hogg paper merchants might be closed down. David’s deep rooted need to be popular triumphs over reality and he immediately promises the staff there will be no downsizing. Ricky, a new temp fresh out of college is shown around the office by David. He is introduced to Tim and Gareth whose fractious relationship is immediately apparent by a fight over a stapler and the construction of a Berlin Wall made from cardboard box files between their desks. In an effort to demonstrate his keen sense of humor, David blames Dawn of stealing Post-It notes and predictably, she does not see the funny side.

David hires Donna, the daughter of his best friend who is also staying at his house. While showing her round the office he finds a doctored pornographic image of himself. Gareth, who claims to have covert operations skills, is told to catch the culprit. Jennifer Taylor Clark visits from Head Office and wants to know what cutbacks David has made. David, displaying his genius as a manager, invents a warehouse employee that he has fired. Jennifer is impressed until a tour of the warehouse makes it clear that the employee's existence was entirely fabricated. Meanwhile, Gareth’s investigations have revealed that the pornographic image was made on Tim’s computer. David attempts to flex his managerial muscle until he realizes who actually created the picture.

It is Tim’s 30th birthday, unfortunately for him, it’s also staff Quiz Night at the bar and reputations are to be made or ruined. Ricky confesses that he has appeared on the quiz show Blockbusters and David, feeling intellectually threatened, is inspired to mention his (non-existent) knowledge of Dostoevsky. Gareth is the host while David and Finchy square-off against Tim and Ricky. The duel is fiercely competitive and Quiz Night comes down to a sudden death scenario with physical challenge that leaves birthday-boy Tim with no shoes.

To fend off the increasing staff frustration a team building training day has been scheduled. Dawn’s engagement to Lee is on the rocks and Tim begins to think that he may at last have a chance with her. Staff training proves monotonous until Gareth announces, during a motivational exercise, that his ultimate dream involves two lesbian sisters. Post lunch the useless team building exercises continue until Tim announces his resignation and leaves.

David decides to hire a secretary, despite the fact that cutbacks still need to be made and existing Wernham Hogg employees threaten office morale. Tim has resolved to quit his job, determined to go back to school to study psychology and make something of his life. To change his mind, Brent convinces Tim to go out with him, Gareth, and Finchy to a bar called Chasers, where "Wonderbras get in free". And Donna finally reveals her new boyfriend is Ricky.

It is judgement day and David is told by Head Office that he will be promoted if he sacrifices the branch. True to his innate sense of self-preservation and greed, David leaps at the chance for a promotion. The office is shocked but Gareth is most devastated - who will take him seriously now he is no longer Assistant to the Regional Manager? However, David makes a surprise announcement at Chasers that he has now rejected the job offer in order to save the branch. But Malcolm discovers the real reason behind his change of heart involves a failed test.