The NSW Government has announced significant upcoming reforms to the state's workers' compensation scheme to address the rising incidence and cost of workplace psychological injury claims.
In a Ministerial Statement (opens a new window) to Parliament on 18 March 2025, Treasurer Daniel Mookhey emphasised the urgency of the reforms, pointing to the sharp rise in psychological injury claims and their growing financial burden on the scheme.
The case for reform
In his address to Parliament, Treasurer Mookhey outlined the key drivers behind the proposed changes:
Over the past six years, psychological injury claims in NSW have doubled, compared to a 16 per cent increase in other workplace injury types.
Psychological injury claims comprise 12 per cent of all claims but constitute 38 per cent of total scheme costs.
The average cost per psychological injury claim has nearly doubled, from $146,000 in 2019–20 to $288,542 in 2024–25.
If current trends continue, an additional 80,000 psychological injury claims could be lodged over the next five years,
In the absence of reform, even claim-free businesses may experience a 36 per cent rise in premiums by 2027-28.
The proposed reforms
To curb the rising costs of psychological claims and the corresponding impact on the sustainability of the NSW workers' compensation scheme, the NSW Government has committed to a series of legislative changes:
1. New bullying & harassment jurisdiction
The NSW Industrial Relations Commission will now have jurisdiction over workplace bullying and harassment matters before they can proceed as workers' compensation claims.
2. Clearer legal definitions
The reforms will establish statutory definitions of "psychological injury" and "reasonable management action" to enhance legal certainty rather than allowing the definitions to remain the subject of litigation.
3. Alignment of impairment thresholds
Whole-person impairment thresholds will be aligned with those used in South Australia and Queensland.
4. Anti-fraud safeguards
Elements of the federal government's anti-fraud framework for the National Disability Insurance Scheme (NDIS) will be incorporated into NSW's workers' compensation system.
5. Enhancements to SafeWork NSW
Respond further to the recommendations from the independent review of SafeWork NSW led by retired Supreme Court Justice Robert McDougall.
What NSW employers can expect
The upcoming NSW workers' compensation reforms are likely to significantly impact both the way employers manage workplace issues such as bullying and harassment as well as their management of psychological injury workers' compensation claims.
As Treasurer Mookhey outlined, the first proposed legislative change is that the NSW Industrial Relations Commission will handle bullying and harassment disputes before they can progress to workers' compensation claims.
This additional step will place greater responsibility on employers to resolve workplace issues internally before they progress as a workers' compensation claim.
Therefore, employers may need to strengthen their internal dispute resolution processes to manage such cases more effectively in order to reduce the likelihood of issues progressing into workers' compensation claims.
Additionally, the reforms will provide clearer statutory definitions for "psychological injury" and "reasonable management action," which is also likely to impact the way psychological injury claims are managed.
Employers will most likely need to review and revise their claims management policies and procedures to ensure compliance with the changes.
Operationalising reform: lessons from WA's recent reform process
Western Australia's recent experience with workers' compensation reform, both in the lead-up to and following the introduction of the Workers' Compensation and Injury Management Act 2023 on 1 July 2024, provides valuable insights for NSW employers preparing for similar reforms.
The new WA workers' compensation legislation included a raft of changes, including a refined definition of 'worker', updated income compensation calculations, expanded psychological injury exclusions, new lump sum settlement agreements, and annual indexation of compensation caps.
For employers in WA, the initial challenge was understanding the full scope of the changes and how they would impact their day-to-day operations.
To help clients navigate the reforms, Lockton provided structured support throughout the transition, including education sessions, detailed resources such as fact sheets and reports, and one-on-one consultations to address specific challenges.
For WA employers, early engagement proved critical.
Employers who took a proactive approach by allowing sufficient time to review and update their policies and procedures while leveraging external expertise were generally the most successful in effectively navigating the complexities of the reforms.
Supporting NSW employers through the transition
We are committed to helping NSW employers prepare for and adapt to the upcoming workers' compensation reforms.
Drawing on our experience in WA, we will offer the same structured support to our NSW workers' compensation clients, including tailored education sessions, comprehensive fact sheets, and detailed reports to help them understand the reforms and their operational impact.
As we saw in WA, early engagement will be key. Employers who proactively review their policies and implement structured processes will be best positioned to manage the reforms with minimal disruption.
Your partner in navigating the NSW reforms
Whether you need support in planning your response or managing the ongoing reform process, we are here to help.
Please do not hesitate to contact us for more information on how we can assist you in navigating the upcoming reforms.
The contents of this publication are provided for general information only. Lockton arranges the insurance and is not the insurer. While the content contributors have taken reasonable care in compiling the information presented, we do not warrant that the information is correct. It is not intended to be interpreted as advice on which you should rely and may not necessarily be suitable for you. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content in this publication.
