The NSW workers compensation reforms taking effect on 1 July 2026 introduce major changes which will fundamentally impact how injuries are assessed, managed and compensated. Whether you’re a small business owner or a large enterprise, these changes carry real consequences for how you operate and how you protect your people.
This article breaks down the key changes and what actions you can take right now to get ahead of them.
1. Higher thresholds for psychological injury entitlements
From 1 July 2026, the minimum whole person impairment threshold for lump sum payouts for psychological injuries is increasing significantly to 25% – with further staged increases to 27% from 1 July 2027, and 28% from 1 July 2029.
This effectively limits lump sum access to only the most serious cases that can demonstrate severe psychological injury, though workers may still receive weekly payments, treatment and return-to-work support.
2. A more defined framework for psychological injury claims
The new framework for psychological injury claims significantly narrows eligibility by excluding general stress or workplace conflict and confining claims to clearly defined categories such as bullying, harassment or trauma. A primary psychological injury will only be compensable if the worker can establish that it:
- Is a diagnosable condition caused by a “relevant event”
- Has a real and direct connection to employment with employment as the main contributing factor
- Is not excluded by an expanded reasonable management action defence
Conduct such as bullying, harassment or excessive work demands must now be assessed against what a reasonable person would consider meeting the statutory definition, rather than simply how the worker experienced it.
3. A new claims pathway for conduct-based claims
A new claims pathway is being introduced specifically for “relevant conduct” claims – covering bullying, sexual harassment, racial harassment, and excessive work demands. Workers lodging these claims will be required to provide detailed particulars of the alleged conduct. Once a claim is ‘complete’, insurers will now also need to determine liability within 42 days.
So, what should employers be doing now?
Get ahead of the changes by taking meaningful steps now. We suggest employers focus on the following areas:
- Maintain psychosocial risk management – The reforms do not change your obligations under work health and safety laws. The legal obligation to manage psychosocial risks remains the same.
- Prioritise early intervention – The reforms reinforce the importance of early intervention and effective claim management, rather than assuming reduced exposure to claims. Acting early is always recommended.
- Audit and update your internal processes – Employers should review and update their internal processes to align with the new framework, particularly around how psychological injury claims are documented and managed.
- Focus on recovery and return-to-work outcomes – The reforms place a stronger emphasis on recovery and return-to-work support, so employers should ensure their processes reflect this priority.
