Small and Medium Enterprises (SMEs) are vital to Malaysia’s economy, contributing significantly to Gross Domestic Product (GDP) and employment. However, challenges such as high turnover, skill shortages, and multicultural workforce dynamics hinder productivity. Leadership styles and Human Resource Management (HRM) practices are increasingly recognized as critical drivers of employee performance, with psychological safety serving as a potential mediating mechanism. This study investigates how inclusive leadership, workplace spirituality, green HRM, and relational Human Resource (HR) practices influence employee productivity in Malaysian SMEs, with psychological safety as a mediator. A quantitative survey approach was employed, targeting SME owners, managers, and HR practitioners. Reliability and validity tests confirmed strong internal consistency across constructs. Structural equation modeling was used to examine direct and indirect relationships among variables. Findings revealed that relational HR practices (β = 0.362, p < 0.001), workplace spirituality (β = 0.174, p < 0.001), and green HRM (β = 0.153, p < 0.001) significantly enhanced employee productivity. Psychological safety strongly predicted productivity (β = 0.634, p < 0.001) and mediated the effects of HRM practices and workplace spirituality. Interestingly, inclusive leadership showed no significant direct effect on psychological safety or productivity. The model explained 40.1% of the variance in productivity and 60.9% in psychological safety. The study highlights psychological safety as a pivotal mechanism linking HRM practices and workplace spirituality to productivity in SMEs. These insights extend leadership and HRM literature in non-Western contexts and provide practical guidance for SME leaders and policymakers to foster resilient, engaged, and productive workforces.