The NSW Government has announced sweeping reforms to the workers’ compensation scheme, designed to reduce costs, improve return-to-work outcomes, and tighten access to long-term benefits for psychological injury claims. For employers, these changes are expected to deliver greater stability, particularly in managing psychological injury claims. Our briefing highlights key changes to assist employers as the new 2026/27 financial year commences.
Key Changes at a Glance
- Annual indexation of entitlements – Benefits will be adjusted yearly to reflect wage and cost movements
- Fixed employer excess – Employers must cover up to two weeks of income support at the start of a claim (applies to policies issued/renewed after 4 pm, 30 June 2026)
- Premium rate freeze – Nominal Insurer premiums frozen for 2026–27 and 2027–28
- “Reasonable and necessary” test – medical treatment entitlements will be assessed under a new standard
- Single Whole Person Impairment (WPI) assessment – one assessment will apply across all claims, reducing disputes
- Merit-based test for legal funding – ILARS and insurers must certify reasonable prospects of success before funding disputes
- New eligibility requirements for psychological injury claims – includes upfront payments during assessment
- Mutual obligations for information sharing – workers and employers must assist insurers in gathering claim information
- Expanded “reasonable management action” defence – stronger protections for employers when actions are reasonable, documented, and procedurally fair
WPI Threshold Changes for Psychological Injury (Effective 1 July 2026)
The upcoming reforms will significantly reshape access to extended weekly benefits and work injury damages for psychological injury claims.
- WPI 21%–25% – Eligible for one additional year of weekly benefits (paid at 60% of PIAWE or statutory maximum)
- WPI >25% – Eligible for extended weekly benefits beyond 130 weeks
Threshold Increases Over Time
- From 1 July 2027 – Threshold rises to >26%
- From 1 July 2029 – Threshold rises to >28%
The existing 15% WPI threshold for work injury damages will continue to apply for psychological injuries notified before commencement. Importantly, the Treasurer retains discretion to lower thresholds in the public interest.
Employers should anticipate fewer psychological claims qualifying for long-term benefits, reinforcing the importance of early intervention and effective workplace management.
Application to New vs Existing Claims
- New primary psychological injury claims only:
- New eligibility requirements
- Upfront payments
- Increased WPI thresholds
- Reduced entitlement periods
- Both new and existing claims:
- “Reasonable and necessary” test for medical treatment
- Single WPI assessment (for requests made on or after commencement)
Additional Structural Changes
- New bullying and harassment jurisdiction in the NSW Industrial Relations Commission
- Expanded classes of claims eligible for commutation
- Dependents may settle disputed death benefit lump sums before the PIC
- PIC may appoint a tutor for persons under legal incapacity
Practical Implications for Employers
- Early intervention is critical – delays may be treated as noncompliance
- Injury notification - prompt and detailed injury notification is required
- Documentation is essential – especially for psychological injury claims and management action defences
- Premium stability for two years – with longer-term savings expected from reduced psychological injury durations
At ABILITY GROUP, we help organisations navigate workers’ compensation and related changes with confidence. If you’d like to discuss or bette runderstand how the NSW reforms will impact your business, contact our team today.
Further Information
Source: EML
Title: NSW workers compensation scheme reforms announced
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