Navigating Psychosocial Hazards in the Workplace

Australia’s work health and safety landscape is undergoing a significant transformation:

• Unmanaged mental health is costing employers almost $11 billion per year through absenteeism, reduced productivity and compensation claims – it’s no surprise that psychological health and safety risk management is now on top of businesses agendas.
• The 2022 Work Health & Safety Amendment Regulation mandated Australian employers, large and small, to proactively identify, assess and manage psychosocial risks in the workplace.
• The Regulation places the primary duty of care on the employer to engage hazard controls to prevent mental harm with work design and processes that prevent or mitigate exposure to reduce the risk of harm.

So, what does this mean for you and your business? 

Running a small business is challenging, and managing costs is a top priority. One of the biggest hidden costs for businesses today comes from unmanaged psychological risk in the workplace, including stress and burnout caused by psychosocial hazards such as excessive workloads, inadequate resourcing, behaviours such as bullying, sexual harassment, conflict, and poor work design.

Many of the qualities that make working for a small or medium sized business appealing – such as agility, flexibility, and a reputation for less bureaucracy and red tape – also create psychosocial hazards and a risk to worker safety. 

Some key examples: 

1. Many operate on stretched resources

Many businesses already operate with stretched resources and limited funding, and employees often wear multiple hats. This role-juggling can create a psychosocial hazard, with burnout being a leading cause of resignation. Businesses are all too aware of the increasing costs of recruitment and retention not to mention workers compensation direct and indirect costs. 

2. Typically have a hands-off approach to safety

Small and medium sized businesses may not have a dedicated Work Health & Safety or HR professional. In some cases, they outsource these roles. In others, the functions don’t exist at all. This hands-off approach to people and safety can lead to psychosocial risks, particularly the management of harmful behaviours, as workplace bullying is now the leading cause of workers compensation claims.

3. Reactive instead of proactive systems

External pressures – like new legislation or market shifts – often result in rapid workplace changes. While smaller businesses are celebrated for their flexibility, this agility sometimes comes at the expense of organisation-wide proactive strategies that protect workers from psychological harm and improve worker wellbeing.

Where to from here? 

So, how do small and medium-sized businesses balance both their legal duties of care under various legislation including the Work Health & Safety Act, Respect@Work Act and Right to Disconnect under the Fair Work Act with the costs of running their business and keeping the doors open?  

The following risk management process is aligned with WHS best-practice and will help to ensure businesses meet their goals of compliance and financial performance:

The first step in the risk management process is clear identification of the psychosocial hazards within your business – a psychosocial risk assessment is the best way to achieve this. Businesses then use their assessment results to inform a psychosocial risk strategy focused on mitigating the risk posed by the psychosocial hazards and risk management gaps identified by the assessment. 

Benefits to your business from managing your psychosocial risk 

To protect employees’ mental health and the business’s bottom line, businesses are realising that investing in the care of their people also means taking care of their bottom line, and that creating a sustainable workforce is key to creating a sustainable business. This is far more than a compliance exercise.

Key benefits include:

1. Avoid Expensive Workers’ Compensation Claims

Work-related stress, burnout, and psychological injuries are driving a rise in workers’ compensation claims, which can be costly and time-consuming. By proactively managing psychosocial risks, you can prevent these claims before they happen.

Example: A single psychological injury claim can cost tens of thousands in direct costs—plus lost productivity and legal fees. Prevention is far cheaper!

2. Reduce Insurance Premiums

Insurers are increasingly factoring psychosocial risks into workplace injury premiums. A strong risk management strategy can help demonstrate lower risk, leading to reduced insurance costs over time.

✅ Businesses that manage psychosocial risks effectively may qualify for lower premiums or avoid increases due to claims history.

3. Save Money on Staff Turnover and Absenteeism

Poor workplace culture and unmanaged stress drive higher absenteeism, disengagement, and turnover, all of which cost small businesses significantly.

A healthier work environment improves retention and performance, saving you money on rehiring, retraining, and lost productivity.

For every dollar spent on improving employee mental health and well-being, businesses can see returns of up to four dollars through increased productivity and reduced costs like workers’ compensation claims (Black Dog Institute). 

4. Protect Against Legal and Regulatory Risks

New workplace safety laws require businesses to assess and manage psychosocial risks, just like physical risks. Failure to comply can result in:
⚠️ Fines and penalties
⚠️ Legal disputes with employees
⚠️ Reputational damage

A psychosocial risk assessment every year or more frequently when change in business occurs, helps you stay compliant and avoid costly legal battles.

5. Fast, Affordable, and Actionable

• Simple and quick—Takes minimal time but delivers valuable insights.
• Tailored to small businesses—Practical steps that work for your size and budget.
• Low-cost entry point—Start with a sample assessment or consultation.

If this raises questions or concerns about your organisation’s compliance situation or psychosocial risk management capability, now is the time to get your house in order.

Whether you need tailored Board and Exec. education, a psychosocial risk assessment, or a clear, practical risk management framework and strategy that works for your organisation—please get in touch for a chat about the topic and your needs.

Rachel King, Human Risk Management is proud to be partnered with SBAA to support members around this important issue. Schedule a free 20-minute chat if you’d like to have a chat about an assessment or learn more about this important topic. We’re also offering 20% off our Risk Assessment Tool until the EOFY.  You’ll find the Assessment here: Psychosocial Risk Assessment Tool

About the Author

Rachel King is the founder of Human Risk Management, established in 2018 to support business owners and leaders across Australia in navigating the often-overlooked risks that arise from human behaviour in the workplace. With a background that blends business, risk, law, and human behaviour, Rachel brings a unique, multidisciplinary approach to helping organisations manage issues such as misconduct, non-compliance, workplace stress, mental health challenges, and psychological hazards including bullying, harassment, and poor work design.

A trusted advisor in the field, Rachel specialises in Advisory Services, Psychosocial Hazard Risk Management, Culture & Compliance, and Mental Health. Her mission is to empower businesses with the practical tools and expert guidance they need to proactively manage people-related risks and build safer, healthier work environments.