NSW has finally enacted significant NSW Workers Compensation Reforms, the most notable in over a decade, with the Workers Compensation Legislation Amendment Bill 2025, which received Royal Assent on 24 November 2025. These reforms introduce tighter definitions and objective tests for psychological injuries, including bullying, excessive work demands, racial and sexual harassment, and establish a clear framework distinguishing between primary and secondary psychological injuries. The reforms also streamline Whole Person Impairment (WPI) assessments to a single principal assessment by an approved medical expert, replacing dual assessments.
Workers Compensation Legislation Amendment Act 2025
The Workers Compensation Legislation Amendment Act 2025 (formerly Bill PK?18747) was passed by NSW Parliament on 18 November 2025 and received Assent on 24 November 2025. It introduces significant changes across multiple Acts to improve the effectiveness, fairness, and sustainability of the workers compensation scheme.
Key Amendments to Psychological Injury Claims
- Objective Definitions: Psychological injuries now explicitly include bullying, racial harassment, sexual harassment, excessive work demands, or violence-related trauma, with objective tests applied for liability
- New Dispute Route: Claims involving “relevant conduct” such as bullying or harassment will be resolved through the Industrial Relations Commission, improving clarity and consistency
- Clarified “Reasonable Management Action”: Section 11A has been revised to define what constitutes lawful employer behaviour in response to workplace issues
Amendments to Impairment Assessments & Lump-Sum Thresholds
- Single WPI Assessment: A single Whole Person Impairment (WPI) evaluation by an approved assessor is now mandated, reducing duplication. A second assessment is permitted only if deterioration by 10% or more is anticipated
- Threshold Retained at 15% WPI: The proposed increase from 15% to 31% for psychological injuries failed. The threshold remains at 15%, maintaining broader access to lump-sum benefits
Changes to Weekly Payment Periods
- Capped at 130 Weeks: Primary psychological injury weekly payments are capped at 130 weeks, unless the injury results in a WPI of at least 21%
- Medical Entitlement Test Upgraded: The standard for medical and treatment costs has been elevated from “reasonably necessary” to “reasonable and necessary”
- Reduced Medical Benefit Period: For psychological injuries, the duration for which medical costs are covered has been shortened under Section 59A
Enhancements to Dispute Requirements & Employer Contributions
- Legal Certification Requirement: Before lodging contested claims, legal representatives for both workers and insurers must certify that the claim has a reasonable prospect of success
- Employer Excess Introduced: Employers must now contribute the first two weeks of weekly entitlements as a claims excess, serving as an incentive for safer workplaces
Governance & Oversight Reforms
- Ministerial Advisory Group Created: A group including injured workers, union and insurer representatives will advise the Minister on injury policy, communication, and support initiatives
- Stronger Definitions & Compliance: Law and explanatory notes emphasise prevention, early intervention, and sustainable funding, as a response to scheme deficits and lower return-to-work rates among psychological injury claimants
Supporters’ Objectives & Scheme Rationale
- Addressing Employment Outcomes: With only ~50% of psychological injury claimants returning to work in a year (versus ~95% for physical injuries), the Act aims to improve recovery and workforce reintegration
- Financial Sustainability: The reforms respond to a growing imbalance between liabilities and scheme assets, aiming to reduce premiums and stabilise funding
- Scheme Modernisation: The changes reflect recommendations from the 2023 Standing Committee on Law and Justice, reinforcing fairness and efficiency
Implications for Employers & Workers
Employers should note the introduction of a two-week excess, capped weekly payments, and increased legal requirements, heightening both financial planning and administrative compliance.
Workers continue to have access to lump sums from a 15% WPI threshold, though weekly payments will be limited unless they exceed 21% WPI. Faster claim resolutions through the Industrial Relations Commission and stricter impairment assessments aim to enhance fairness and transparency.
Scheme-wide, the Act seeks to shift focus to prevention, early intervention, and targeted psychological injury management—balancing claimant protection with financial sustainability.
These legislative reforms mark the most significant update to NSW’s workers compensation scheme in over a decade. If you’d like further analysis on how these changes affect your business or staff, ABILITY GROUP can help you adapt to the evolving regulatory environment.
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Further Information
Source: NSW Government
Title: Workers Compensation Legislation Amendment Bill 2025
Read Time: 30+ minutes
Source: QBE
Link: Workers compensation NSW changes are here
Read time: 5 mins