The NSW Government has passed sweeping changes to the workers compensation system through the Workers Compensation Legislation Amendment (Reform and Modernisation) Bill 2025.
These changes will have the greatest impact on workers suffering psychological injuries — including stress, anxiety, depression and PTSD caused by workplace bullying, harassment, excessive workload, or traumatic events.
For many injured workers, these reforms will make it harder to access long-term financial support.
Here’s what that means in real terms.
Psychological Injury Claims Will Be Harder to Sustain
The most serious change is the increase to the whole person impairment threshold for psychological injuries.
Under the new scheme:
- Workers will need to meet a much higher level of permanent impairment before they can access long-term weekly payments.
- Lump sum compensation will be restricted to only the most severely impaired workers.
- Many workers with genuine, serious psychological injuries may have their payments cut off after a limited period.
Psychological injuries often take longer to diagnose, stabilise and assess than physical injuries. Recovery is rarely linear. Symptoms can and generally do fluctuate. Many workers are unable to return to work safely for extended periods.
By raising the threshold, the new law effectively reduces access to long-term protection for workers whose injuries do not meet an extremely high impairment level — even if they are genuinely unable to return to work.
“Reasonable Management Action” Will Be a Bigger Barrier
The reforms also strengthen the defence available to employers where an injury arises from “reasonable management action.”
In practice, this means:
If your psychological injury arises in the context of performance management, discipline, restructuring, or internal complaints processes, your claim may be more difficult to succeed.
Many psychological injuries arise during periods of workplace conflict, bullying, or poorly handled performance processes. Expanding this defence may create further hurdles for workers already dealing with trauma.
The Risk for Injured Workers
The stated aim of the reforms is to make the scheme financially sustainable and encourage return to work.
But the practical risk is this:
- Injured workers will lose income support before they are medically fit to return to work.
- Financial pressure may force premature returns to unsafe or unsuitable work.
- Some injured workers may be left relying on Centrelink rather than workers compensation.
Psychological injuries can be just as disabling as physical injuries. Treating them as less deserving of long-term support raises serious fairness concerns.
When Will These Changes Take Effect?
The Bill has passed both Houses of the NSW Parliament but is still awaiting Royal Assent.
Once Royal Assent is granted:
- The legislation becomes law.
- Different parts of the legislation may start at different times.
- Transitional rules will determine whether existing claims are affected and how.
This timing will be critical. Workers with current claims may be impacted depending on when their injury occurred and when their impairment is assessed.
What Injured Workers Should Consider Now
If you:
- Have an existing psychological injury claim,
- Are approaching an impairment assessment, or
- Are considering lodging a claim,
you should urgently understand how these reforms may affect your entitlements.
Early advice can be crucial — particularly where time limits, assessment thresholds and transitional provisions apply.
The Bottom Line
These reforms represent a significant shift in the balance of the workers compensation system.
For workers with psychological injuries, the pathway to long-term financial protection is becoming narrower.