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The NSW Parliament on Wednesday, 4 February 2026 passed additional amendments to the NSW Workers Compensation legislative scheme.
These changes introduce additional changes and clarifications to the already sweeping reforms introduced by the Workers Compensation Legislation Amendment Bill 2025.
Key takeaways from the amendments
- Increasing the impairment threshold to access common law damages for primary psychological injuries.
- Establishing impairment and return-to-work requirements for workers claiming weekly compensation for primary psychological injuries beyond 130 weeks.
- Limiting compensation payable if reasonable management action was the significant cause of the primary psychological injury.
Increasing the impairment threshold for common law damages in psychological injury claims
From 1 July 2026, common law damages will not be payable unless the threshold for the degree of permanent impairment is at least 25% for a primary psychological injury. The NSW Government has also introduced a minimum threshold of "more than 26%" from 1 July 2027 and "at least 28%" from 1 July 2029.
Impairment threshold for weekly compensation after 130 weeks
Similarly, workers with primary psychological injuries will be restricted from accessing weekly compensation beyond 130 weeks unless their impairment is 21% or greater.
However, where a worker's impairment is between 21% – 25% (from 1 July 2026), 21% – 26% (from 1 July 2027) and 21% – 28% (from 1 July 2029), to access weekly compensation up to 182 weeks they must either:
- Have no work capacity; or
- Have current work capacity; and
- Have returned to work for at least 15 hours per week; and
- Have current weekly earning of at least $225 per week.
If their impairment exceeds the maximum threshold, they will be able to access compensation for up to 182 weeks without the need to meet these requirements. The "worker of high needs" threshold of 31% impairment to access weekly compensation up to retirement age plus one year remains undisturbed.
Section 11A – "the significant cause"
The new laws now provide that no compensation is payable "if the significant cause" of a psychological injury was caused by either:
- Reasonable management action taken or proposed to be taken by an employer in relation to a worker; or
- A worker's expectation of reasonable management action being taken in relation to the worker; or
- A worker's perception of reasonable management action taken or being taken in relation to the worker.
This contrasts with the pre-amendment requirement of the psychological to be at a minimum, "predominantly" caused by reasonable management action.
Industrial Relations Commission
The IRC has been granted exclusive jurisdiction to determine whether conduct the subject of a claim is "relevant conduct". Following an unsuccessful review by the insurer, workers with work-related psychological injuries must lodge an application with the IRC to determine whether they have been subjected to relevant conduct, prior to commencing proceedings in the Personal Injury Commission.
Reviewing the Psychiatric impairment rating scale (PIRS)
The amendments have mandated a review of the PIRS assessing assessment of psychological impairment. The scale will be reviewed as well as other alternative methods of assessing psychological impairment. The outcome of the review will be tabled to Parliament around late-2027 / early 2028, and may affect how medical examiners assess impairment in the future.
Freeze on insurance premium rate increases by Nominal Insurer until 1 July 2028
From 30 June 2026, there will be a freeze on insurance premium rate increases by the Nominal Insurer, ceasing on 1 July 2028. Insurers will be restricted from charging premiums that exceed the aggregate collection rate calculated from the 2025/26 financial year.
Conclusion
The amendments denote the NSW Government's efforts to modernise the Workers Compensation Scheme. The revised impairment thresholds are designed to incentivise injured workers to build capacity and maintain social connection through workplace participation, whilst ensuring the most severely injured continue to receive lifelong support and care. Furthermore, the amendments will support employers in managing psychological injury claims arising from lawful and reasonable management action.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
