The next escalation is usually a written warning, signed off on by the employee. This is also the point at which you may want to consider a Performance Improvement Plan (PIP), which is essentially a formalized action plan for employee improvement. A PIP is typically at least 60 days, has commitments from both the employee and management, and contains realistic, attainable goals. PIPs generally make more sense in situations where an employee is having performance issues rather than behavioral issues; for instance, giving an otherwise good employee 90 days to improve their typing skills makes sense, whereas giving someone even 30 days to stop sexually harassing their co-worker does not make sense. Whether you give a simple written warning or implement a PIP, make sure you are perfectly clear as to what will happen should they fail to improve or modify their behavior.
If the problem isn't resolved after a written warning or PIP, stay true to your word and proceed to the next step, whether that is another written warning, a final written warning, suspension, or termination.