Ask Jason
NSW Workers Compensation
NSW has delivered its biggest workers compensation overhaul in more than a decade. Two pieces of legislation, the Workers Compensation Legislation Amendment Act 2025 and the Workers Compensation Legislation Amendment (Reform and Modernisation) Act 2026, reshape how psychological injury claims are assessed, how premiums move, and how medical entitlements are tested. The first set of changes commenced on 27 March 2026, with further changes scheduled through mid-2026. For insurers, claims managers, employers and health providers, the practical effect is significant.
Why the scheme is changing
The reforms respond to a scheme under financial strain. In a March 2025 statement, the NSW Treasurer pointed to a 97.6 percent rise in the average cost of psychological injury claims over five years, a projected premium increase of around 36 percent by 2027-28 without intervention, and a Nominal Insurer funding ratio of 85 cents for every dollar owed to injured workers. The government paired the legislation with a 344 million dollar workplace mental health package and a stated goal of aligning the workers compensation, work health and safety, and industrial relations systems.
What is changing for psychological injury claims
Psychological injury sits at the centre of the reforms. Key changes include clearer and more objective definitions for psychological injuries, covering bullying, excessive work demands, racial harassment and sexual harassment, and revised terminology around the reasonable management action defence. Whole Person Impairment thresholds are rising on a phased basis: the threshold for ongoing weekly payments moved to 25 percent from October 2025, with a further move above 30 percent scheduled for 1 July 2026.
The Treasurer also gains a power to lower the threshold where it is in the public interest. A new Return to Work intensive program will provide workers with a psychological injury additional support, including an extra year of medical benefits and income replacement, and the NSW Chief Psychiatrist is reviewing the Psychiatric Impairment Rating Scale used to assess permanent impairment.
Premiums, indexation and the medical test
For employers, the reforms legislate a freeze on the Nominal Insurer premium target collection rate for the 2026-27 and 2027-28 policy periods. The freeze does not guarantee an individual employer premium will not move, because premiums still respond to wages, business activity and claims experience. Benefit indexation also shifts from twice yearly to annual. A reasonable and necessary test now underpins medical entitlements, a change that applies as the primary reform for exempt workers such as police, paramedics and firefighters.
What this means for insurers, claims managers and health providers
The reforms change both the volume and the nature of work flowing to claims teams and health providers. More objective psychological injury definitions and a higher impairment threshold sharpen the focus on early intervention and on evidence that supports or challenges liability and entitlement decisions. The reasonable and necessary test raises the bar for justifying ongoing treatment, which places a premium on clear, defensible clinical reasoning. Claims managers should expect closer scrutiny of treatment plans, including medication regimens, where cost and clinical justification do not align.
Key Takeaways
- The Workers Compensation Legislation Amendment Act 2025 and the Reform and Modernisation Act 2026 form the largest NSW scheme overhaul since 2012.
- An initial set of changes commenced on 27 March 2026.
- WPI thresholds for psychological injury are rising in phases, reaching above 30 percent from 1 July 2026.
- The Nominal Insurer premium target collection rate is frozen for two policy periods.
- A reasonable and necessary test now governs medical entitlements.
Frequently Asked Questions
When did the NSW workers compensation reforms take effect?
An initial set of reform changes commenced on 27 March 2026, with further provisions, including the higher WPI threshold, scheduled from 1 July 2026.
What is the new WPI threshold for psychological injury claims?
The Whole Person Impairment threshold for ongoing weekly payments moved to 25 percent from October 2025 and is scheduled to rise above 30 percent from 1 July 2026.
Does the premium freeze mean my premium will not change?
No. The freeze applies to the Nominal Insurer target collection rate. An individual employer premium can still change due to wages, business activity or claims experience.
Primary source: SIRA and icare (NSW Government), 2025-2026.
