NSW Parliament passed a second workers compensation reform bill on 4 February 2026, following the passage of the first reform bill in November 2025.
The Workers Compensation Legislation Amendment (Reform and Modernisation) Bill 2025 (“Second Bill”) follows the earlier Workers Compensation Legislation Amendment Bill 2025 (“First Bill”), which delivered the initial tranche of scheme amendments.
The Second Bill gives further effect to the Government’s reform program by updating psychological injury entitlements and procedures.
The key changes introduced in the Second Bill, which apply only to injured workers with a primary psychological injury, are outlined below.
WPI thresholds, benefits and procedures for psychological injury
The 15% whole person impairment (WPI) threshold for work injury damages will remain in place for primary psychological injuries notified before the new legislation commences.
The legislation introduces an intensive Return to Work program that will provide an extra year of medical benefits and income support, delivering further structured assistance to workers during their recovery.
Workers with a primary psychological injury will continue to receive up to 130 weeks of weekly compensation unless they meet the new WPI thresholds that allow access to extended benefits.
Injured workers will now be required to wait for the Industrial Relations Commission to determine whether the alleged behaviour amounts to “relevant conduct” before they can proceed with a dispute before the Personal Injury Commission.
Employers may rely on the reasonable management action defence where the management action is considered the significant cause of the psychological injury.
WPI thresholds for weekly payments beyond 130 weeks
From 1 July 2026, workers assessed with a WPI between 21% and 25% will become eligible for an additional year of weekly benefits, paid at either 60% of the worker’s pre‑injury average weekly earnings (PIAWE) or the maximum weekly compensation amount, whichever is lower.
Workers assessed with a WPI above 25% will continue to qualify for extended weekly benefits beyond 130 weeks.
This threshold will increase over time, rising to 26% on 1 July 2027 and then to 28% on 1 July 2029.
Workers must meet the relevant WPI threshold to receive extended weekly benefits or to pursue work injury damages.
Employer excess
The new employer excess arrangements will apply to all claims made under policies issued or renewed with the Nominal Insurer on or after 4 pm on 30 June 2026, providing a precise date for when the revised excess rules will commence for employers.
Premium freeze for 2026–27 and 2027–28
The legislation introduces a freeze on the Nominal Insurer’s premium target collection rate for the 2026–27 and 2027–28 premium years, and it specifies that there can be no increase in the insurance premium rate until 30 June 2028.
Employer premiums may still vary each year due to changes in wages and claims experience, but during the freeze period, the underlying industry rates and related adjustment factors will remain unchanged.
Psychiatric injury assessment review
The reforms require the NSW Chief Psychiatrist to provide a report within 18 months recommending an alternative approach to assessing whole person impairment for psychiatric injuries.
Once completed, this review will inform potential future changes to the assessment framework.
Next steps
The NSW Government has not yet confirmed commencement dates for either Bill.
We will continue to monitor developments closely and provide guidance as further details become available.
We are committed to helping NSW employers navigate these changes and will be holding client information sessions shortly; registration details will follow.
In the interim, if you have any questions about the reforms or would like assistance understanding what they mean for your organisation, please get in touch.
The full versions of both bills can be accessed via the Parliament of NSW website (opens a new window).
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. The contents of this publication are not intended as a legal commentary or advice and should not be relied on in that way. 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.
