NSW workers’ compensation reforms: More compliance, less clarity for HR teams

HR teams that prioritise clarity, compassion, and proactive support mechanisms will emerge stronger, building healthier and more resilient workplaces even as regulatory pressures increase, writes Karlie Cremin.

With psychological injury claims having doubled since 2018 and associated costs close to double since 2020, the NSW government’s workers’ compensation reforms are being positioned as a necessary fiscal responsibility.

Indeed, without reform, premiums could surge by as much as 36 per cent – an untenable increase for many businesses. However, beneath the surface of these cost-control measures lies a concerning shift: more compliance demands but significantly less clarity for human resources and workplace safety teams.

As the proposed legislation currently stalls in the upper house and undergoes further inquiry, organisations are left uncertain about the final shape and implications of these reforms. The primary proposal is to raise the whole-person impairment (WPI) threshold for psychological injury claims, meaning fewer claims will qualify for long-term compensation. On the surface, this might reduce costs, but it places HR departments in an extremely challenging position.

This reform signals a clear pivot toward a more compliance-driven environment, especially around psychosocial safety and risk management. However, it also leaves many crucial questions unanswered, particularly around how vulnerable employees experiencing mental health difficulties will receive adequate support when their conditions don’t meet the higher threshold for compensation. HR teams, already stretched thin managing complex employee wellbeing scenarios, will shoulder the burden of navigating these grey areas.

There is a genuine risk that the new thresholds will inadvertently penalise employees who need the most support. Consider an employee who experiences prolonged psychological distress due to sustained high-pressure workloads but does not meet the new WPI threshold. Under the proposed reforms, there may be limited or no mandated support for this individual, potentially leaving them without essential support mechanisms and creating a significant gap in workplace mental healthcare.

The current system is already struggling, characterised by insufficient assessor resources, reliance on provisional liability, and prolonged return-to-work timelines for psychological injuries. These factors have resulted in high costs and low efficacy. Medical professionals and workers alike report that the existing claims process itself often exacerbates psychological distress, undermining recovery.

In response, HR teams must urgently rethink their approach to psychosocial risk management. Now is the time for organisations to conduct comprehensive reviews of their policies, training programs, early intervention processes, and mental health support systems. Crucially, organisations must be prepared not only to implement these frameworks but also to demonstrate their effectiveness clearly to regulators.

HR teams need to bridge the gap between policy and practice, ensuring that even employees who fall outside formal workers’ compensation eligibility are not left without essential support. Strategies could include tailored, flexible duties, adjusted roles, proactive wellbeing check-ins, and robust employee assistance programs.

It is also imperative to invest in leadership capability, equipping managers with trauma-informed approaches to recognise early signs of distress and intervene effectively. Transparent communication about what is changing, who will be affected, and how organisations will support their employees will be critical to maintaining trust during this period of uncertainty.

Ultimately, while compliance is essential, it alone will not protect organisational culture or employee wellbeing. HR teams that prioritise clarity, compassion, and proactive support mechanisms will emerge stronger, building healthier and more resilient workplaces even as regulatory pressures increase. The NSW reforms may demand compliance, but HR’s response must centre on clarity, proactive care, and genuine cultural resilience.

Karlie Cremin is the managing director of Dynamic Leadership Programs Australia.