•Prevalence of employment precariousness is higher among temporary workers.•A positive gradient exists between poor mental health and employment precariousness.•Precariousness among permanent workers have stronger impact on poor mental health.•Multidimensional Employment Precariousness Scale is useful for health research.•Monitoring employment precariousness is a priority to reduce health inequalities. Employment precariousness (EP) has expanded over recent years. The aim of this study is to test the existence of a general precarisation of the Spanish labour market and its association with mental health for different types of contract. On the subsample of salaried workers from the second Psychosocial Work Environment Survey and using the revised Employment Precariousness Scale (EPRES-2010), we calculated the prevalence of EP and poor mental health for salaried workers. We created six groups of workers according to their levels of EP and types of contract. We used Poisson regressions, stratified by gender, to examine associations between belonging to the different groups of workers and poor mental health. Although temporary workers had a higher prevalence of EP and poorer mental health than permanent workers, we found that the association with poor mental health was unexpectedly stronger in permanent workers with high precariousness (2.97, IC95% 2.25–3.92 in men and 2.50, 1.70–3.67 in women) than in temporary workers (2.17, IC95% 1.59–2.96 in men and 1.81, 1.17–2.78 in women). A gradient of poor mental health existed by EP score for both men and women and permanent and temporary workers. The Spanish labour market is highly affected by employment precarisation. Using the multidimensional EPRES is more informative and a better tool for mental health research than type of contract alone. Creating a surveillance system to monitor the magnitude and evolution of EP has to be a priority in order to reduce health inequalities and to evaluate the impact of policies and programs.