In March 2025 the NSW Treasurer announced proposed reforms to the scheme, specifically regarding psychological injury claims. The proposed changes were outlined in the Workers Compensation Ministerial Statement, published 18 March 2025.

The intention is to improve interventions in workplaces to prevent psychological injuries in the first place, to better protect workers. The Treasurer explained that this will be achieved through increased utilisation of workplace health and safety and industrial relations laws.

On Friday, 9 May 2025, the NSW Government released an exposure draft proposing reforms to the legislation which underpins workers compensation in NSW. You can find a copy on the NSW Parliament website here: Proposed changes to liability and entitlements for psychological injury in New South Wales.

On Tuesday, 27 May 2025, the NSW Government introduced into Parliament a Bill formally proposing reforms to the legislation which underpins workers compensation in NSW. You can find a copy on the NSW Parliament website here: Workers Compensation Legislation Amendment Bill 2025.

The reforms are DRAFT and may well change as they are debated in Parliament.

The key reforms introduced in the Bill are: 

• • New definitions of psychological injury.
  • A requirement that for a psychological injury to be compensable:
    • It is caused by a relevant event.
    • There is a real and direct connection between the relevant event and the worker’s employment.
    • The worker’s employment is the main contributing factor to the psychological injury.
  • Relevant events include an act or threat of violence, indictable criminal conduct, witnessing a traumatic incident or the scene of a traumatic incident, experiencing vicarious trauma, being subjected to sexual harassment, racial harassment, bullying or excessive work demands.
  • Objective tests for determining whether an act or omission constitutes bullying, excessive work demands, or racial or sexual harassment.
  • New definition of reasonable management action, as it relates to psychological injuries, meaning that:
    • action taken by an employer in a reasonable way, and
    • that is reasonable in all the circumstances, will be presumed to not give rise to a compensable injury.
  • A 42-day (6 weeks) liability determination period for psychological injuries
    • 6 weeks to be paid at 75% of Pre-Injury Average Weekly Earnings (PIAWE).
    • A maximum of $7,500 for medical and related treatment.
    • If the claim is subsequently accepted, weekly benefits to be adjusted to 95% of PIAWE, and all medical and related treatment to be paid as determined reasonable and necessary.
  • Unless a psychological injury results in 31% whole person impairment or greater:
    • Weekly benefits will cease at 130 weeks.
    • Medical benefits will cease 12 months after weekly benefits.
    • A worker will not be entitled to receive compensation for permanent impairment or commence a Work Injury Damages claim.
  • The current ‘reasonably necessary’ test for medical, hospital and rehabilitation expenses will be replaced by the ‘reasonable and necessary’ test used in the NSW CTP Scheme.
  • The approach to Whole Person Impairment generally will change, with a move to a joint medico-legal process.
  • Indexation of pre-injury average weekly earnings (PIAWE) will only occur once a year.
  • A prescribed excess amount on claims will be regulated, which could see an employer required to pay an excess on each claim.
  • An increase in the penalty for an employer who does not provide suitable work from 50 penalty units to 100 penalty units.

On Tuesday, 3 June 2025,  the legislation was debated through the Legislative Assembly (Parliament’s lower house) and, following minor amendments, it was passed to the Legislative Council (Parliament’s upper house) for consideration.

On Thursday, 5 June 2025, the Legislative Council (upper house) debated, and ultimately agreed to, a motion to refer the Workers Compensation Legislation Amendment Bill 2025 to the Public Accountability and Works Committee for inquiry and report.  Further, the motion provides that the committee will determine its own reporting date.