NSW Workers' Compensation is Changing - Here's What You Need to Know

The NSW Government is overhauling the state’s workers’ compensation system. These changes are designed to cut costs, reduce delays, and manage the sharp rise in psychological injury claims. But the reforms have triggered debate across politics, unions, legal experts and the business community.

Here’s a breakdown of what’s proposed, why it matters, and what happens next.

Why Is the Government Changing the System?

The NSW workers’ compensation scheme is under financial pressure. Psychological injury claims have doubled since 2017. These claims are more complex, take longer to resolve, and are significantly more expensive — now averaging almost $300,000 per claim.

The Government says that without reform, employers could face a 36% increase in insurance premiums by 2028, and that the current scheme is costing the state $5 million per day in financial losses. Over $6.1 billion in public funds has reported to have been provided into the system since 2018.

What Is Changing?

In May 2025, the NSW Government introduced a revised reform bill.

Here's what it includes:

• A new 8-week fast-track process for psychological injury claims caused by bullying, harassment, sexual or racial abuse, or work-related trauma.

  
  

• Workers will receive interim payments and support while their claim is being assessed. This ensures they’re not left out of pocket during the waiting period.

  
  

• The Industrial Relations Commission (IRC) will gain new powers to:

  
  

  • Issue stop-bullying orders

  • Enforce workplace changes

  • Order public apologies

  • Award damages of up to $100,000

One of the most debated parts of the plan is the proposal to raise the Whole Person Impairment (WPI) threshold for long-term compensation.

Currently, workers need to be assessed as having 15% impairment to qualify for ongoing weekly payments beyond 130 weeks.

Under the new plan, this threshold will gradually rise:

• To 25% in October 2025

  
  

• Then to 30% by July 2026

The Government says this targets support to the most seriously injured and helps reduce long-term claim costs. However, critics state that 99% of psychological injury claims currently fall below 30% WPI, which means most workers would be excluded from ongoing support.

Workers who don’t meet the new threshold could still access a lump-sum payout instead of weekly payments, but the details of how this will work are still being debated.

What Support Is Being Added?

Alongside the reforms, the Government has announced a $344 million investment in workplace mental health.

This includes funding for:

• Over 50 new SafeWork inspectors focused on psychological hazards

  
  

• Support services for workers with mental health claims

  
  

• Better enforcement of existing workplace safety laws

There will also be changes to legal processes, including clearer definitions around “reasonable management action,” and stronger oversight of scheme-funded lawyers.

Where Do Things Stand Now?

On 5 June 2025, the NSW Upper House blocked the immediate passage of the bill and referred it to a second parliamentary inquiry. The Coalition and Greens said more evidence and consultation is needed — especially around the increase to the impairment threshold.

The Law Society of NSW, mental health experts and unions have all raised concerns about the impact these changes will have on workers with legitimate psychological injuries. They argue the new thresholds are too high and will leave vulnerable people without support.

The NSW Government says the delay will cost millions and stall much-needed savings.

What Happens Next?

The bill remains under review. The outcome of the new inquiry will determine whether the reforms are passed, amended, or rejected. The Government has already included projected savings from these changes in its 2025–26 budget, so the pressure to act is high.

In the meantime, businesses, insurers, workers, and legal professionals should prepare for changes in how psychological injury claims are managed.

Why This Matters

These reforms mark a significant shift in how psychological injury claims will be handled in NSW — and that will directly impact the way workplace investigations are expected to run.

With the introduction of fast-tracked claims and tighter assessment timeframes, there will be more pressure on employers to act quickly, gather accurate information, and respond decisively. Investigations into bullying, harassment, excessive workloads, or misconduct will need to be conducted with greater speed, clarity, and structure to meet new expectations.

This is where we come in.

At Scout Investigations, we help employers respond to workplace issues with rigour and confidence. Whether it's an internal complaint, a complex psychological injury claim, or a need for due diligence, we conduct timely, fair, and defensible investigations that stand up to scrutiny.

If you need help navigating these changes or managing an emerging issue in your workplace, get in touch. We’re here to support you.