Significant NSW workers compensation reforms passed: What employers need to know

On Tuesday, 18 November 2025, nine months after the NSW Government announced its intention to reform the State’s workers compensation scheme, an amended version of the Workers Compensation Legislation Amendment Bill 2025 (opens a new window) (“the Bill”) has been passed by the NSW Legislative Assembly.

This followed its passage through the Legislative Council on 14 November 2025.

While the Bill has passed both Houses, it is not yet law and now awaits the Governor’s Assent before becoming legislation.

This legislative milestone represents the most significant reform to the State’s workers compensation scheme in more than a decade.

Background to the reform process

The reform process began in March 2025, when the NSW Government announced (opens a new window) its reform agenda to address escalating costs and complexity in psychological injury claims.

In May 2025 the NSW Government released an exposure draft of the Workers Compensation Legislation Amendment Bill 2025 (opens a new window) (“original Bill”), proposing sweeping changes to the scheme.

Over the following months, a Parliamentary Committee conducted multiple public hearings (opens a new window) and gathered extensive stakeholder input.

On 6 August 2025, the NSW Government introduced a second new bill, the Workers Compensation Legislation Amendment (Reform and Modernisation) Bill 2025 (opens a new window)into the Lower House.

On 3 November 2025, the Parliamentary Committee published a 162-page report (opens a new window) containing 14 recommendations.

On 13 November 2025, an amended version of the original Bill (opens a new window) (“amended Bill”) was returned to the Legislative Council for debate.

On 14 November 2025, the Legislative Council passed the amended Bill.

Four days later, on 18 November 2025, the Legislative Assembly also passed the amended Bill.

The passing of the new legislation confirms the commencement of what promises to be a complex implementation process that will reshape employer obligations and claims management across the state.

Key Amendments Passed

The amended Bill passed by NSW Parliament introduces several significant changes including:

• Updated definitions of psychological injuries, introducing objective tests for bullying, excessive work demands, racial harassment, and sexual harassment.

• Disputed claims involving “relevant conduct” must now be referred to the Industrial Relations Commission for determination.

• Clarified meaning of “reasonable management action”, with corresponding amendments to Section 11A.

• Medical and treatment expense test updated from “reasonably necessary” to a higher threshold of “reasonable and necessary.”

• Section 59A reduces the period in which medical expenses are paid for a primary psychological injury.

• Streamlined impairment assessments, requiring a single principal Whole Person Impairment (WPI) assessment by an approved medical assessor.

• Section 39A amended to limit weekly payments for psychological injuries to 130 weeks (2.5 years), unless the worker is assessed at 21% WPI or higher.

• Negotiation of lump sum death benefits allowed where there is a legitimate liability dispute.

What’s Next?

With the new legislation now passed by Parliament, attention now shifts to the process of implementation, which is expected to involve staged commencement dates, new regulations, and potentially further legislative updates

New regulations and guidelines will need to be developed by SIRA to give effect to the reforms.

The NSW Government has indicated (opens a new window) that a second Bill will progress, incorporating compromises offered by crossbench members.

The NSW Government has confirmed (opens a new window) that the Chief Psychiatrist has been commissioned to design a new psychiatric impairment assessment framework, which will underpin the implementation of psychological injury provisions.

This work will align with the SW Workers Compensation Guidelines for the Evaluation of Permanent Impairment (opens a new window), managed by SIRA.

NSW claim service providers will review their processes to ensure compliance with the new legislative changes and implementation timeframes.

Employers should expect further detail on commencement dates and regulatory requirements in the coming months.

Key Implications for Employers

While these legislative changes are intended to curb escalating costs from psychological injury claims, NSW Treasurer Daniel Mookhey has cautioned (opens a new window) that employers should still expect steep premium increases in the short term.

Updated definitions of psychological injuries and objective tests for bullying, harassment, and excessive workload will require closer monitoring of workplace behaviour and psychosocial risks.

Disputed claims involving “relevant conduct” will now go to the Industrial Relations Commission, increasing the need for thorough documentation and defensible management practices.

Clarification of “reasonable management action” means performance management processes must align with statutory requirements.

Streamlined impairment assessments, new weekly payment limits, and changes to medical expense rules will affect claims management and internal procedures.

While WPI thresholds remain unchanged, employers should anticipate heightened scrutiny of psychological injury claims and strengthen governance, risk management, and employee support systems.

Need Support?

We will continue to provide updates as further details on implementation and commencement dates are released.

If you require clarity on the implications for your organisation or need strategic guidance to help manage financial and operational impacts, our People Solutions team is ready to assist.

To learn how Lockton can help support your organisation in adapting to these reforms, please get in touch.

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.