Overhaul of workers' compensation laws follows increase in number of psychological injury claims
Controversial reforms to the NSW workers' compensation system passed State Parliament's Lower House on Wednesday.
The reform, called the Workers Compensation Legislation Amendment Bill 2025, was introduced after the Government said the compensation scheme has not kept pace with the rising psychological injuries.
NSW Treasurer Daniel Mookhey said in a statement the bill was about creating a modern system that will better protect workers from psychological injury and provide better help when they need it.
The Government has already made significant changes to the legislation, dropping a plan to make a compensation claim for a psychological injury first be heard by a court or tribunal.
The legislation comes as the number of psychological claims has doubled since 2018, while the average cost of psychological claims has almost doubled since 2020, according to the state government.
It added that only 50% of workers with a psychological injury are returning to work (RTW) within a year, with the rate going up to 50% for those with a physical injury.
Dr Katrina Norris, director of the Australian Association of Psychologists, pointed out that the system has failed workers with psychological injury in an attempt to adapt the legislation.
"It has also failed employers by not providing the clarity and support to manage psychological health and injury in the workplace, and to understand the factors contributing to the complexities in recovering from psychological illness," Norris told HRD.
"The legislation needs to adopt clearer definitions of psychosocial hazards to support employers in better understanding the factors contributing to psychological injury and in managing such factors."
According to Norris, there are a variety of reasons for the low rates of recovery and return to work for psychologically injured workers, such as the "ill-equipped" compensation system that is unable to support injured workers' needs and the lack of knowledge and understanding around how to support someone with psychological illness.
"There is still a lot of stigma around mental health and this can affect the way employers interact with workers who have a psychological injury. Workplace support is a significant indicator of RTW outcomes and employers need to be better supported in how to maintain or improve relationships with injured workers to increase the likelihood of a RTW."
Norris stressed addressing psychological health and safety to reduce injury claims cannot be rushed.
"A balanced approach is needed to ensure the system is fit for purpose and is no longer trying to fit a square peg into a round hole," she said. "It should be about understanding and preventing injury, not just cutting the level of support provided to those who have already been injured in the workplace."
Meanwhile, the Ai Group said it welcomes the government's determination to ensure the workers' compensation system remains viable.
"There is clearly a burning need to adopt sensible measures to constrain premium costs. Addressing the complex issue of how claims connected with psychological illness are dealt with is a necessary part of the puzzle," Ai Group chief executive Innes Willox said in a statement.
The average premium for employers in NSW went up by eight per cent in 2024/25, following an eight per cent increase in 2023/24. According to the state government, the premiums paid by businesses will go up by 36% over three years to 2028 without the reform.
"On any reasonable assessment, both the current costs of the system and the trajectory of future increases in premiums are unsustainable," Willox said.
The chief executive urged Parliament to tackle the unsustainable cost impact of ballooning premiums on employers in NSW.
"Those ballooning costs mean employers are less able to invest in people, plant, and equipment at a time when we are becoming less productive and competitive by the day," he said.
The NSW's workers' compensation reform is headed to the upper house on Thursday.
