On 18 March 2025, NSW Treasurer Daniel Mookhey set out plans to reform the workers compensation system with regards to psychological injuries.
Psychological injuries can occur in any type of workplace and can manifest in different forms. Common psychosocial hazards in the workplace can range widely. It can range from high job demands and poor support, to traumatic events or material, to bullying and harassment.
What has been proposed?
The proposed model has three key points:
- Firstly, introducing bullying & harassment jurisdiction to the NSW Industrial Relations Commission. This will be modelled on federal law, requiring a bullying and harassment claim to be heard there first before a claim can be made through the workers compensation system.
- Secondly, properly defining terms such as ‘reasonable management action’ and ‘psychological injury’. This aims to adopt an inclusive definition for psychological injury.
- Thirdly, Aligning the whole person impairment (WPI) thresholds to South Australia and Queensland standards. The WPI is a percentage threshold of permanent impairment suffered by injured workers. This system is utilised to determine the monetary entitlement to lump sum compensation. The reforms could see the threshold of 15% WPI in respect of psychological injuries rise.
Additionally, it was emphasised that:
- To prevent abuse of the system, the NSW Government would adopt some of the same anti-fraud measures recently enacted by the Commonwealth government in response to fraud related to the National Disability Insurance Scheme.
- The government would respond further to the recommendations made by the McDougall review completed in 2023, as well as other recommendations from the State Insurance Regulatory Authority and the NSW Parliament Committee on Law and Justice.
Why have these reforms been proposed?
The Treasurer highlighted several reasons for the need for these reforms:
- A recent rise in cases has exposed the system’s inability to prevent and treat psychological injury, with the number of cases doubling in six years.
- While 88% of workers who experience a physical injury typically return to work within 13 weeks, however 40% of workers with psychological injuries are still be unable to return to work after over a year.
- The average cost of a psychological injury claim has nearly doubled, from $146,000 in 2019-20 to $288,542 in 2024-25.
The Treasurer emphasised that the reason for these statistics is because the system is not actually returning workers to health, and consequently they cannot go back to work, requiring further workers compensation benefits to be paid.
It was also noted that even employers who prioritise psychological safety and do not have any psychological injury claims against them are however, not immune to the rising costs associated with psychological injury claims. Consequently, those employers may expect to see their insurance premiums rise by 36% over the next three years.
How should employers respond?
- Employers must ensure they stay informed about any reforms to the workers compensation framework.
- Ensuring internal dispute and other policies and procedures are updated to comply with any reforms.
- Work towards reducing/mitigating the risk of psychological harm in the workplace, including by prioritising proactive risk management.
- Revise performance review policies and procedures to meet a potential new definition of ‘reasonable management action’.
For further advice on how these reforms could impact your business or to discuss our full range of services, please contact our team
Phone: (02) 9181 5001
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Sources:
https://www.nsw.gov.au/ministerial-releases/workers-compensation-ministerial-statement