Pundits split over NSW workers’ compensation reform

On Wednesday (4 February), NSW Parliament passed its Workers’ Compensation Legislation Amendment (Reform and Modernisation) Bill 2025, eliciting mixed reactions.

In workers’ compensation reforms passed in the NSW Parliament on Wednesday through the Workers’ Compensation Legislation Amendment (Reform and Modernisation) Bill 2025, businesses will see changes such as a 18-month freeze on average workers’ compensation premium increases (until 30 June 2028), the retention of the whole person impairment (WPI) threshold passed by the house of representatives last year, better support for injured workers, and greater protections for employers against illegal workers’ compensation claims.

‘Sparing’ businesses

In a statement, the NSW government said the compensation reforms “spare” businesses from significant increases to their workers’ compensation premiums, allowing them a “stronger pathway to recovery”.

Business NSW chief executive Daniel Hunter noted that in the absence of these reforms, businesses would have faced a “projected 36 per cent increase in premiums over the next three years”.

Justin Stack, managing director at Stacks Law Firm, said: “The good news for workers is that the government’s original plan to increase the whole person impairment for psychological injury from 15 per cent to 31 per cent was defeated in Parliament.”

As passed by the House of Representatives last year, Business NSW noted that the WPI threshold will be increased “for workers to receive weekly payments beyond 130 weeks to 25 per cent commencing from 1 July 2026, and 28 per cent from 1 July 2029”.

Jennifer Moran, Dentons’ employment and safety managing associate, said these reforms will likely lead to fewer psychological injury claims qualifying for weekly repayments beyond 130 weeks as a result of higher WPI thresholds increased by the reforms – which may reduce long-running psychological injury claims.

In addition, Moran noted that the tightened eligibility criteria for injury-related damages entitlements will lower the number of workers who are able to pursue a claim for damages, particularly for psychological injuries. “The smaller number of damages claims that do proceed may become more protracted,” she said.

Stack said: “The changes are aimed at keeping workers’ comp insurance costs down, which should be good for everyone.”

Despite the reforms receiving support, Ronan MacSweeney, president of the Law Society of NSW, noted that the “unusually accelerated consultation process” for the reforms revealed a “number of shortcomings” of the bill.

The reforms will also provide the Treasurer with powers to lower the WPI threshold, if it’s in the public interest; a replacement program for defunct SMEs advisory service, Business Connect and changes to terminology surrounding the reasonable management action defence.

Significant deficiencies in the consultation process

MacSweeney noted the Law Society of NSW proposed alternative approaches to improve systemic efficiency without compromising access to justice.

He added that the society’s contributions to the process included written submission and oral evidence before a parliamentary inquiry, with answers to questions on notice.

“The concerns and suggestions raised were not addressed or reflected in the final version of the legislation,” said MacSweeney.

In addition, MacSweeney said concerns were raised about the “significant deficiencies in the consultation process”.

“Legislation not subject to comprehensive consultation from the outset is more likely to result in unintended consequences,” he added.

A system overdue for a rehaul

NSW Treasurer Daniel Mookhey acknowledged that the workers’ compensation scheme has been “failing injured workers, employers, the non-profit sector and taxpayers”, saying that these reforms will allow the stabilisation of the workers’ compensation system to return it to a “secure footing”.

Michael Byrnes, partner at Swaab, noted that the workers’ compensation scheme has been “increasingly strained by an avalanche of psychological injury claims with the prospect of ever-increasing premiums”.

He noted the WPI threshold needed to be adjusted to ensure the viability of the workers’ compensation scheme.

“There is always a balance to be struck between adequately providing for injured employees and the sheer economics of funding such provision while ensuring premiums for employers don’t soar to unsustainable levels,” Byrnes said.

Obligations to maintain a safe workplace

Byrnes stressed that employers should remain consistent and vigilant in ensuring that psychological safety is kept in the workplace.

“There remains an obligation to maintain a safe workplace, including the duty to manage the risks arising from psychosocial hazards. Creating a safe workplace is also consistent with the obligations of employers under the separate but related Work Health and Safety Act,” Byrnes said.

Yvette Davies, client director of workplace risk at Aon, also emphasised the importance of employers being proactive in identifying and managing psychosocial risks in the workplace.

“The immediate focus for HR departments needs to be on strengthening policies, procedures and documentation; refining investigation and conduct processes; working with the broader business to optimise return-to-work strategies and reviewing premium options to reap the benefits of stringent HR practices when the premium constraint is lifted,” Davies said.

Moran said: “It is important for HR departments to ensure that their record-keeping practices continue to be detailed and up to scratch, including maintaining well-documented return-to-work guidelines, steps and consultative processes, as this will assist with determination of return-to-work disputes (which may now proceed to the NSW Industrial Relations Commission).”

“HR departments should continue to monitor how these new laws develop so they will be able to report back to business leaders with their recommendations and potential areas of exposure to address.”