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Considering the increasing levels of unemployment and underemployment, and the limited evidence concerning the impact of underemployment on health, my study examines the relations between subjective, objective, and time-related underemployment and employees’ health-related quality of life, as manifested through self-rated health, activity limitations and work-related stress. The study compares an expanded model of work-health relations that, along with the factors addressed by control-demand, and social capital theories, includes characteristics of the physical work environment, and employees’ economic class. In addition to the commonly examined factors related to employment and health (control-demand and social capital), my study explores the impact of the work environment (hazards, discomfort and physical demands) and economic class to determine the specific effects of underemployment on an employee’s health-related quality of life. My main argument is that underemployment, in conjunction with lower economic class, higher exposure to a harmful work environment, lack of control over work, and lower social capital, contributes to increased work-related stress and diminishes health-related quality of life. The study applies a mixed methodological approach based on data from the Canadian Work and Lifelong Learning Survey and the US General Social Survey, and qualitative analysis of interviews from the Ontario Survey on Education-Job Requirements Matching. Evidence based on cross-sectional and qualitative data analysis provides consistent findings and confirms the main assumption that high levels of underemployment have a significant effect on employees’ health-related quality of life. The study shows that employees’ economic class, characteristics of work environment and control over work carry the highest associations with health-related quality of life, while underemployment has a significant additive association with health-related quality of life, most importantly with work-related stress.