The NSW Government is rolling out the most significant overhaul of the workers’ compensation system in more than a decade — and it’s set to reshape how psychological injury, workplace safety, and long-term support are managed across the state.
Whether you’re an employer, HR professional, insurer, advisor, or worker, these reforms will impact you. Here’s a clear breakdown of what’s changing, why it’s happening, and what it means for workplaces across NSW.
Why the System Is Being Reformed
Psychological injury claims have been rising rapidly — not just in number, but in cost. At the same time, iCare’s financial sustainability has been under pressure, prompting the government to strengthen prevention, clarify entitlements, and stabilise the scheme’s long-term viability.
The result is the Workers Compensation Legislation Amendment (Reform and Modernisation) Bill 2025, which introduces sweeping changes that aim to better balance worker protection with system sustainability was passed yesterday by the NSW Parliament.
The Biggest Changes at a Glance
1. New Definition of Psychological Injury
The law will now more clearly define what counts as a psychological injury — and what doesn’t.
Key points include:
- Recognising excessive work demands as a potential cause.
- Clarifying the boundaries around reasonable management action.
- Setting more precise standards for proving workplace causation.
This is expected to reduce uncertainty and streamline decisions, but also narrows the types of stress-related claims that will be accepted.
2. New Pathway for Bullying & Harassment
A dedicated “stop-bullying” jurisdiction in the NSW Industrial Relations Commission will operate alongside workers’ compensation.
There will also be an 8-week fast-track pathway for psychological injury claims arising from bullying or harassment, allowing workers to receive early support while the claim is assessed.
3. Higher Whole-Person Impairment (WPI) Thresholds
The bar for accessing long-term weekly payments will rise:
- Increasing to 25% WPI from late 2025
- Increasing to 30%+ WPI by July 2026
Only those who meet the higher thresholds will retain access to ongoing weekly compensation.
Workers below the threshold may instead receive a commuted lump sum.
This is one of the most controversial reforms and will significantly reshape the long-tail cost of psychological injuries.
4. Stronger Recognition of High-Risk Events
The reforms will more explicitly recognise:
- Vicarious trauma
- Exposure to violence
- Witnessing severe injury or death
- Criminal workplace conduct
This gives greater protection to frontline workers such as healthcare staff, emergency responders, and community workers.
5. Employer Excess on Claims
A fixed “excess” payment will be introduced for employers when a claim is lodged.
This is intended to:
- Encourage stronger early intervention
- Incentivise investment in safer systems
- Reduce preventable psychological harm
6. Legal & Cost Reforms
Lawyers funded by the scheme must act in workers’ best interests and pursue only claims with reasonable prospects.
This aims to reduce disputes, legal costs, and lengthy claim processes.