The NSW Government has passed significant reforms to the Workers Compensation scheme, with most changes expected to take effect from 1 July 2026. These changes represent a tightening of the scheme—particularly around psychological injury claims—and will impact employers, workers and how claims are managed.

Below is a clear, practical overview.

Why the Changes Are Being Introduced

The reforms are designed to:

• Improve the long-term sustainability of the scheme
• Address the growth in psychological injury claims
• Create more consistency and structure in claims assessment
• Support better return-to-work outcomes

Key Changes to Be Aware Of

1. Major Changes to Psychological Injury Claims

This is the most significant area of reform:

• Claims must arise from a clearly defined “relevant workplace event”
• Employment must be the main contributing factor
• An objective “reasonable person” test will be applied
• Workers will need to provide detailed evidence upfront

What this means:
General work stress or interpersonal conflict will be much harder to claim unless tied to specific, identifiable events.

2. Higher Thresholds for Compensation

For psychological injuries in particular:

• Higher Whole Person Impairment (WPI) thresholds (around 25%)
• Reduced access to lump sum and common law claims
• Weekly benefits generally capped at 130 weeks

What this means:
Fewer claims will qualify for long-term or significant compensation.

3. New Claims Process for Bullying & Harassment

A new process applies to conduct-based claims:

• Detailed claim information required upfront (dates, events, witnesses)
• Claims are not treated as lodged until complete
• Insurers must decide liability within 42 days

What this means:
A more structured, evidence-driven process with stricter timeframes.

4. Changes to Permanent Impairment Assessments

• Introduction of a single assessment framework
• Limited opportunities to reassess impairment
• More formal approval requirements

What this means:
Greater consistency, but less flexibility for workers to revisit assessments.

5. Medical & Treatment Cost Controls

• Treatment test tightened to “reasonable and necessary”
• Certain treatments may no longer be covered

What this means:
Stronger control over medical costs and treatment approvals.

6. Increased Employer Obligations

• Higher penalties for non- or under-insurance
• Introduction of enforceable undertakings
• Increased employer excess on claims with weekly benefits

What this means:
Greater compliance expectations and potential cost exposure for employers.

7. Premium & Scheme Adjustments

• Premium rates frozen initially
• Move to annual indexation adjustments
• Expanded access to lump sum settlements (commutations)

What This Means for Employers

• Tighter scrutiny on psychological injury claims
• Greater importance of workplace practices and documentation
• Need to review HR processes and claims handling procedures
• Potential for increased cost exposure via excess changes

What This Means for Workers

• Harder to qualify for psychological injury claims
• Greater reliance on clear, evidence-based incidents
• Reduced access to long-term benefits in many cases

Key Takeaway

These reforms significantly reshape the NSW Workers Compensation scheme, tightening eligibility—particularly for mental health claims—while aiming to keep the system financially sustainable.

For businesses, the focus should now be on:

• Proactively managing workplace and psychosocial risks
• Keeping clear records of workplace issues and actions
• Seeking advice early on claims and compliance obligations