Peter Gibbons is a disgruntled programmer at Initech. He spends his days "staring at his desk" instead of reprogramming bank software to be Y2K-compliant. His co-workers include Samir Nagheenanajar, who is annoyed by the fact that nobody can pronounce his last name correctly; Michael Bolton, who loathes having the same name as the famous singer, whom he hates; and Milton Waddams, a meek, fixated collator who constantly mumbles to himself.
Milton had actually been laid off years earlier, though he was never informed and, due to a payroll computer glitch, continues to receive regular paychecks. All four are repeatedly bullied and harassed by management, especially Initech's smarmy, callous vice president, Bill Lumbergh. The staff are further agitated by the arrival of two consultants, Bob Slydell and Bob Porter, who are brought in to help through downsizing and outsourcing.
Peter is depressed, bored, and pushed around at work. He attends an 'occupational hypnotherapy' session urged by his girlfriend, Anne. The hypnotherapist, Dr. Swanson, suddenly dies of a heart attack before he can snap Peter out of a state of complete relaxation. The newly relaxed and still half-hypnotized Peter wakes up the next morning and ignores continued calls from Anne (who angrily leaves him, confirming his friends' suspicions of her infidelity) and Lumbergh (who was expecting Peter to work over the weekend). Peter announces that he will simply not go to work anymore, instead pursuing his lifelong dream of "doing nothing". He finds himself finally relaxed enough to ask out Joanna, a waitress who shares Peter's loathing of idiotic management and love of the television program Kung Fu. Joanna works at Chotchkie's, a restaurant that plays on T.G.I. Friday's interior decoration and uniform standards.
Peter begins removing items at work that annoy him (a door handle that had shocked him on previous occasions, corporate slogan banners, a wall of his cubicle that blocks his view of the windows) and parks in Lumbergh's reserved parking spot. Despite Peter's behavior, he is promoted by the consultants because of the positive impression he makes on them with his bluntness about the office's problems.