By Gaby Grammeno Contributor

The overhaul of the NSW workers' compensation scheme has gathered pace with the release of proposed changes to the law, amid calls from Business NSW to urgently reform the system.

The Minns Government released its draft amendments to the state’s workers' compensation legislation on Friday 9 May, as part of its ongoing consultation on changes to make the workers compensation system sustainable into the future.

The government says the IR reform proposals recognise that workplace health and safety and workers’ compensation laws are failing both workers and employers. The workers comp deficit has hit $3.6 billion, growing by $1.8 billion last year alone, or nearly $5 million a day. Premiums are set to soar by 36% over the next three years if nothing is done.

A just and affordable system for properly compensating workers harmed by their employment – while minimising fraudulent claims and rorting – is what we all want, but achieving it is a perpetual challenge.

 

Psychological injuries soar

Psychological injuries like stress, anxiety and depression, often relating to work-related issues are a particular concern, with claims rising by 65% since 2021-22, causing skyrocketing costs for businesses. These claims take longer to resolve and are more complex than physical injuries, leading to longer absences and increased business costs.

Such claims are losing businesses countless hours in productivity and admin, with staff away for long periods, roles that cannot be replaced and the business under-resourced, as well as steep premium hikes, even without prior claims.

Moreover, the system is being misused to escalate workplace grievances and thwart performance management processes, according to Business NSW CEO Daniel Hunter.

‘We have heard dozens of cases recently where the scheme has been used as a defence against low level workplace disputes and underperformance,’ he said.

Mr Hunter also noted the harm caused to workers who are absent from the workplace for long periods.

'Time away from work is a bad outcome for everyone ... it can be very bad for a worker and their mental health to be disconnected from their workplace,' he said.

Business NSW supports the NSW Government’s push to reform the system so that it distinguishes genuine injuries from workplace disputes.

 

Planned reforms

Minister for Industrial Relations Sophie Cotsis said the planned reforms include expanding the psychosocial inspectorate of SafeWork NSW, and industrial relations reforms that establish a 'stop bullying' jurisdiction.

The establishment of the new jurisdiction would reportedly require workers to take psychological injury claims to the Industrial Relations Commission before seeking

compensation. The government’s position is that this is not about curbing workers’ rights, but about giving them an avenue to report harmful work practices.

Minister Cotsis also highlighted changes to iCare to include a principal objective focused on promoting early and appropriate treatment and care for injury and illness.

The Exposure Draft of the Workers Compensation Legislation Amendment Bill 2025 sets out proposed changes to the Workers Compensation Act 1987, including amended definitions of ‘psychological injury’, ‘reasonable management action’ and ‘relevant event’, in the context of events that could trigger psychological injuries.

The changes would stop weekly payments for primary psychological injuries after 130 weeks (half the maximum duration for physical injuries), if the injury does not meet the threshold for a lump sum payment.

The proposed amendments include a new Part 6, Determination of degree of permanent impairment. Among other provisions, this would raise the bar for eligibility for a lump sum payment from the current threshold of 15% to 31% impairment, a move that will no doubt attract critical scrutiny.

The changes would also limit the number of assessments that may be conducted – one principal assessment only, in relation to the same injury or for more than one injury arising from the same incident.

The proposed scheme would no longer make provisional payments for claims where a significant cause of the injury was reasonable management action, or a worker’s expectation or perception of such action – a change Business NSW has been advocating.

NSW Treasurer Daniel Mookhey has referred the Exposure Draft to the Standing Committee on Law and Justice in the Legislative Council, which will hold a parliamentary inquiry to further examine and seek feedback on reform options.

He encouraged businesses and other stakeholders to read the Exposure Draft for themselves and examine proposals to improve the effectiveness of the scheme and address its failings.

Business NSW and the 50,000 businesses it represents can now consider whether the proposed reforms will meet their concerns about the need for better management of psychological claims, clearer eligibility for compensation, and a balanced system that supports workers without crippling businesses.

It remains to be seen what other stakeholders will make of the proposed changes, and what the eventual outcome will be, when the consultation and review processes have been completed.