Effects of Mental Health in the Workplace and Why It’s Important

Heavy workloads, economic pressures, lack of work-life balance, and insufficient rest are the norm for many of today’s workers. According to Paychex’s 2026 Priorities for Business Leaders report, 52% of HR workers in businesses with fewer than 20 employees report moderate levels of burnout. These challenges can lead to poor mental health in the workplace, including depression, lack of motivation, reduced focus, and declining productivity. "Smaller teams often feel these pressures more acutely,” says Bridget Hallman, Employee Wellness Manager at Paychex. “When resources are constrained, prioritizing mental health support becomes not just harder, but more essential.”

Poor mental health can also contribute to an overall lack of engagement and high turnover. According to the survey, one in four business leaders said that burnout and stress have led to voluntary separations, and another 32% cited work-life balance issues as the reason employees chose to leave.

To reverse these trends, employers need to understand what employee mental health is, what factors affect it, and how to create a positive mental health environment at work.

What Is Employee Mental Health?

Mental health describes a person’s state of social, psychological, and emotional well-being and is essential to overall wellness. Research repeatedly links mental and physical health, which influence each other and shape how we think, feel, and act. For example, the National Institute of Mental Health (NIHM) reports that chronic illnesses such as cancer, heart disease, or diabetes can increase the likelihood of having or developing a mental health condition. Conversely, some mental health conditions, like depression, can increase a person's risk of physical illness.

What Causes Poor Mental Health at Work?

Poor working conditions — including excessive stress, toxic relationships, inexperienced leadership, and unclear communication — all contribute to poor mental health at work. Combined with unclear roles and expectations, long or inflexible work schedules, unrealistic demands, and a lack of resources for employees, it's no surprise that many workers feel dissatisfied, depressed, and exhausted.

Other factors can compound the issue, such as:

• Job insecurity
• Poor communication
• Being micromanaged
• No sense of teamwork
• Inadequate pay/financial stress
• Discrimination, harassment, or bullying
• Too many unpleasant or repetitive tasks
• Watching favoritism play out with coworkers
• Unclear roles, conflicting expectations, and poor communication
• Excessive workloads and long hours, leading to poor work-life balance and employee burnout

A hostile or toxic work environment can also lead to social isolation, seriously impacting a person’s mental health at work. These issues create a ripple effect as employees struggle to balance personal challenges, work demands, and financial pressures.

Importance of Talking About Mental Health in the Workplace

Regularly discussing mental health at work benefits everyone. Positive mental health contributes to:

• Better on-the-job performance
• Higher levels of creativity
• Stronger corporate culture
• Greater sense of self-worth

Positive mental health builds resilience in the face of job-related stressors and setbacks. Providing resources to manage difficult emotions, stress, and anxiety can help your employees remain confident in the face of challenges.

Signs an Employee is Struggling With Mental Health

According to the National Institute of Mental Health, almost 60 million American adults — one in every five — live with mental illness. Recognizing when an employee is struggling with their mental health is the first step toward creating a more supportive work environment. Common indicators include:

• Increased absenteeism
• Quiet quitting
• Withdrawal from coworkers
• Fatigue, irritability, or other mood changes
• Low motivation and decline in performance
• Loss of confidence
• Frequent physical illnesses
• Changes in personal care or appearance

Building mental health awareness in the workplace starts with training managers and leaders to notice these signs early and respond with support. When awareness is part of everyday culture — not just a one-time training — employees may feel more comfortable reaching out before challenges escalate.

Impact of Poor Employee Mental Health in the Workplace

Lack of mental health support can drive up healthcare costs and undermine business productivity. In July 2024, the Bureau of Labor Statistics (BLS) reported that over 3 million working-age Americans had a mental health condition that limited work, and 800,000 of those were still employed.

On the job, mental health impacts may include:

Workplace Errors & Poor Decision Making

Good decision-making involves focusing on the issue at hand, weighing the possibilities, and choosing the best course of action. An employee who is struggling with mental health issues may be more easily distracted, have slower reaction times, experience decision fatigue, or exercise poor judgment in a stressful situation.

These challenges may increase the likelihood of making errors, including data-entry mistakes, failure to follow safety protocols, rushed decisions, lapses in communication, and taking shortcuts that affect the quality of work. Personal time management, project planning, and overall control of the work environment may also decline, leading to declining productivity and performance.

Poor Relationships With Managers and Colleagues

Working under constant stress strains even the best relationships. Mental health struggles may cause employees to avoid social interactions, disengage during collaborative projects, or experience more conflicts with managers and team members. These challenges can be worse if an employee works for an overbearing or unsympathetic manager. Unrealistic expectations for deadlines, sales quotas, or deliverables can create additional stress and anxiety, which in turn makes the employee less able to meet expectations and continues the cycle of declining mental health.

Low Morale & Increased Risk of Job Flight

Satisfied employees who have strong social networks at work tend to exhibit higher loyalty. Conversely, when an employee faces tense relationships, few growth opportunities, and a lack of appreciation, they often experience declining morale. Without additional support to address these issues, they are at risk of leaving the business to find a better fit elsewhere.

Declining Company Revenue

Revenue for any business is the cumulative result of many efforts, including innovation, attention to detail, and excellent service. Employees who struggle with poor mental health will not be able to bring their full creative energy to any of these responsibilities, leading to reduced productivity and lost profit. Mental health challenges also contribute to increased absenteeism and presenteeism (being present but not able to work at full capacity), reducing an employee’s overall effectiveness.

Damaged Reputation & Negative Brand Association

In an age when customers and employees freely share their experiences on social media, low employee morale is more likely to influence public opinion about a business. Employers who fail to address workers' mental health needs often experience negative impacts on their corporate brand, which in turn can harm talent acquisition and sales.

Legal Protections for Mental Health in the Workplace

When mental health affects an employee’s ability to work, federal law provides support for their health needs and protection against discrimination. Employers covered by these laws must provide reasonable accommodations that may include things like flexible scheduling, remote work options, modified workloads, or quiet workspaces that allow employees to perform their essential job functions.

The primary laws defining these requirements are:

• Americans with Disabilities Act (ADA): The ADA protects employees with mental health conditions that substantially limit one or more major life activities. Employers with 15 or more employees must provide reasonable accommodations unless doing so creates an undue hardship. Protections apply across all employment decisions, including hiring, promotion, and termination.
• Family and Medical Leave Act (FMLA): The FMLA allows eligible employees to take up to 12 weeks of job-protected, unpaid leave per year for a serious mental health condition. The time can be used for their own care or that of a qualifying family member.
• Mental Health Parity and Addiction Equity Act (MHPAEA): The MHPAEA requires group health plans to cover mental health and substance use disorders the same way they do physical health conditions. Insurers cannot impose stricter limits on mental health benefits than they do on medical or surgical care.

Failing to provide reasonable accommodations or making employment decisions based on a mental health condition can expose your business to discrimination claims.

How To Improve Mental Health in the Workplace

Supporting mental health in the workplace does not have to be expensive or complicated. The most important step you can take is educating yourself, your managers, and your employees on how to recognize and address mental health needs. Here are some specific steps you can take:

• Foster Psychological Safety at Work: Psychological safety means employees feel safe sharing their ideas, opinions, and challenges without fear of reprisal or criticism. Psychologically safe work environments value open communication, treat mistakes as learning opportunities, and create belonging for all employees.
• Offer a Rich Mix of Benefits: Employers can help their workers feel less stressed about their health and their financial future with affordable health insurance, an employer-sponsored retirement plan, programs specifically dedicated to supporting employee mental health, an employee assistance program (EAP), and programs that offer financial fitness support. Help employees make the most of these benefits by promoting access and awareness.
• Provide Dedicated Mental Health Training: Train your leaders to recognize warning signs and respond empathetically. Supportive, trained managers check in often, listen, and respond early to distress.
• Schedule Routine Check-Ins With Supervisors: Regular one-on-one meetings give supervisors a chance to gauge how their employees are feeling. Discussions can include challenges, available solutions, and career pathing to keep the employee engaged and working towards goals.
• Respect Work-Life Balance: Consider flexible schedules and remote work options where possible, and always respect boundaries between work and non-work time. Model appropriate work-life balance from the top down so workers see that leaders value their own mental health.
• Set Up a Confidential Online Communication System: Create an internal communication system employees can use to contact their HR professional or supervisor if an issue arises. This offers a convenient, confidential way to keep leaders and employees connected and allows leaders to respond quickly to employee concerns.
• Create Opportunities for Mental, Social, and Physical Enrichment: Consider including additional workplace perks in your benefits package to help employees feel valued. For example, you might offer voluntary physical fitness challenges, employee recognition programs, wellness programs, or gym memberships. You could also schedule regular team lunches, participate in community service projects, send handwritten thank-you notes for a job well done, or offer service appreciation awards.
• Invest in Growth and Development: Help employees grow in their roles, both personally and professionally. Offer quality training and education, mentoring opportunities, and clear, equitable pathways for career advancement.

Effects of Good Mental Health in the Workplace

When employees feel burnt out and overworked, they tend to leave and seek better opportunities elsewhere. Those losses carry high costs for your business. According to the Priorities for Business Leaders Report, separation costs doubled for businesses with 20-49 employees, and the number of businesses experiencing voluntary separations jumped from 42% to 51% between 2025 and 2026.

To keep these employees engaged and increase productivity, create a culture that values mental health, and offer resources to support employees who are struggling. Happier, healthier employees do better work, get more done in less time, and serve your customers more effectively. Taking meaningful action to protect employees’ mental health also shows your employees that you care about them as individuals, which can improve their overall performance.