The NSW workers’ compensation reforms: how they impact your business

The NSW workers’ compensation reforms: how they impact your business

Following 6 months of public and committee hearings, parliamentary inquiries and two separate workers’ compensation bills, the Workers’ Compensation Legislation Amendment Bill 2025 has now passed through both houses of Parliament and just requires royal assent to become legislation. 

Whilst proposals on increasing impairment thresholds for lump sum and work injury damages payments on psychological injuries were ultimately rejected, the Workers’ Compensation bill still contains amendments that represent the biggest changes to the NSW Workers’ Compensation scheme in more than a decade. 

When considered alongside the Industrial Relations reforms earlier in the year, it is clear employers are now facing a more complex risk landscape with greater compliance obligations and predicted cost pressures that need to be addressed.

The two key legislative changes that underpin this shift are:

• The Workers’ Compensation Legislation Amendment Act 2025 – this introduces faster claim determinations, provisional payments, and clearer definitions of psychological injury (passed on 18th November 2025)
• The Industrial Relations and Other Legislation Amendment 2025 (Workplace Protections) Act – this strengthens anti-bullying and harassment protections and expands WHS obligations (passed on 3rd July 2025)

The two bills have been passed to fast-track decision making on liability for psychological claims, strengthen the anti-bullying and harassment protections and ensure employers proactively manage psychosocial risks in the workplace. 

Together, these reforms signal a new era of accountability for workplace mental health.

What does this mean for you, as an employer? 

The overall message remains undeniably clear: these reforms significantly raise the bar for managing psychosocial risks. Employers will need to ensure their risk management strategies and processes can withstand the tighter scrutiny and faster timelines that these Acts will introduce. 

Key changes include:

• A 42-day timeframe for determining liability on psychological injury claims linked to bullying, harassment, or excessive work demands, with provisional payments during assessment.
  Impact: Employers will need to investigate complaints and gather evidence quickly. Delays or poor documentation could lead to provisional payments and accepted claims before the issue at hand are fully understood.

• Clearer definitions of psychological injury and defences, now explicitly defining bullying, sexual or racial harassment, excessive work demands, vicarious trauma, and tightening of existing defences for claims caused by reasonable management action.
  Impact: Greater clarity for employers with more robust legal defences available, particularly within the context of reasonable management action, which should improve the rates of decisions being maintained if challenged.

• A new dispute pathway, with the Industrial Relations Commission (IRC) handling bullying and harassment disputes, while the Personal Injury Commission (PIC) will continue to manage disputes related to injury e.g. permanent impairment and treatment.
  Impact: Employers face a more complex and costly legal environment, with separate forums for conduct and injury issues, making early, well-documented responses critical.

• Stronger WHS duties, including compliance with psychosocial hazard codes and increased enforcement powers for regulators and unions.
  Impact: Failure to comply could result in costly penalties and reputational damage. Employers must demonstrate proactive risk management, not just reactive measures.

Why this matters for your business

These reforms fundamentally change the risk landscape for employers. They introduce faster claims processes, shift some financial and operational responsibility for disputes from scheme agents to employers and impose stricter obligations under workplace health and safety laws. For employers this means higher exposure to disputes, reputational risk, and likely premium increases. What was once considered “best practice” may no longer be sufficient. Employers need to act now to ensure their risk management strategies are fit for purpose. 

The critical next step 

Now is the time to review your risk management strategy. These reforms demand more than surface-level policy updates; they require a holistic approach to managing psychosocial hazards and ensuring compliance. 

It is also intensely important that Executive leaders, WHS and HR professionals, and line managers understand the new obligations. Staff should also be educated on behavioural standards and complaint pathways. A well-informed workforce is essential to reducing risk and maintaining compliance.

Finally, additional insurance protections available through products like group salary continuance and management liabilities should be explored. 

Taking steps now will put your organisation ahead of the curve, closing gaps before they become costly disputes. If you’re unsure where to start, seeking expert guidance can help you ensure your business is protected.