In May this year, the release of the draft Workers Compensation Legislation Amendment Bill 2025 (opens a new window) generated considerable discussion and an expectation of swift legislative progress.
Since that time however, momentum has slowed, and the timing of any substantive reform remains uncertain.
Given the level of interest and the potential impact on employers, we are providing this recap to clarify where things stand now and what may lie ahead.
Reform overview
The NSW Government is advancing a substantial reform agenda for the state’s workers compensation scheme, with a particular focus on the management and compensation of psychological injuries.
The proposed legislative changes are intended to address rising claim volumes and escalating costs (opens a new window), with the broader goal of ensuring the scheme’s long-term financial sustainability.
If enacted, these reforms would have implications for how employers manage psychological health, workplace conduct, and injury prevention.
Where are we in the legislative process?
March 2025: Reform agenda announced (opens a new window).
May 2025: Exposure draft (opens a new window) of new legislation released for public consultation.
May–June 2025: Parliamentary inquiry and debate; bill passed the Legislative Assembly and moved to the Legislative Council.
June 2025: Bill referred (opens a new window) for further review.
June–July 2025: Public Accountability and Works Committee held two hearings with input from stakeholders.
August 2025: With no firm date for the Committee’s report, the NSW Government introduced a new Bill (Workers Compensation Legislation Amendment (Reform and Modernisation) Bill 2025 (opens a new window)) (“new Bill”) into the Lower House.
October 2025: Third Public Accountability and Works Committee hearing (opens a new window) held, considering both the original and new Bills.
Current Status: The second reading debate for the new Bill was adjourned after its introduction in August. No specific date has been set for when parliamentary debate will resume.
Key provisions of the new Bill
The threshold for psychological injury claims relating to permanent impairment compensation and work injury damages is set at 25% Whole Person Impairment (WPI), with a continued provision for a 31% WPI threshold, indicating a proposed stepped approach.
Threshold changes do not apply to claims (or Pre-Filing Statements for damages) lodged before 1 July 2026.
Insurers are required to determine liability for psychological injury claims within 42 days (six weeks).
Reduction in entitlements to weekly benefits and medical expenses for psychological injuries unless the higher impairment thresholds are met.
An objective test will be applied to psychological injuries arising from conduct.
The determination of ‘relevant conduct’ will be made by the Industrial Relations Commission.
What this could mean for NSW employers
While the legislation remains under review and may be subject to further amendment, employers should be aware of its intent: to reduce scheme costs and improve sustainability by tightening psychological claim eligibility and promoting early intervention.
If progressed, the reforms may lead to increased expectations around psychological health management, workplace behaviour, and injury prevention.
Employers may need to review internal policies, strengthen risk frameworks, and enhance support systems to align with a more preventative and accountable approach.
As the reform process continues, early preparation will be key to minimising disruption, maintaining compliance, and managing workers compensation costs.
How we can help
Our People Solutions team provides strategic support to help NSW employers respond effectively, including:
Comprehensive risk assessments to identify potential exposure
Targeted claims strategies and policy reviews to strengthen governance
Practical training programs to build internal capability
Impact analysis to inform decision-making
Ongoing compliance guidance to stay ahead of legislative change
To discuss how we can support your organisation, 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.
