Fewer than 6% of workers assessed above the old threshold would clear the new workers compensation bar, leaving HR to manage the rest
Three months after New South Wales raised the bar for psychological injury compensation, HR leaders are dealing with a workers compensation system that is narrower, slower and still missing key assessment rules, according to Chantille Khoury, principal and workers compensation specialist at Law Partners Injury Lawyers.
The reforms, which took effect on 1 July 2026, lifted the Whole Person Impairment (WPI) threshold – the percentage measure of how much a permanent injury affects a person's overall functioning – from 15% to 25% for workers with a primary psychological injury.
That threshold now governs access to weekly payments beyond 130 weeks and to work injury damages. It is legislated to rise to more than 26% from 1 July 2027 and to at least 28% from 1 July 2029, according to law firm Herbert Smith Freehills Kramer.
Figures supplied by Law Partners Injury Lawyers show how few workers will clear the new bar. Of 1,514 NSW workers with a primary psychological injury assessed at 15% WPI or higher in the 2024–25 accident year, just 88 reached 25% or above – fewer than 6%.
"They have narrowed the scope upon which you can lodge an acceptable workers' comp claim," Khoury said.
A narrower gateway for psychological injury claims
Under the new framework, compensation is payable for a primary psychological injury only if it was caused by a defined "relevant event", has a real and substantial connection to employment, and employment was the main contributing factor, according to Herbert Smith Freehills Kramer. Bullying, harassment and excessive work demands fall into a category the legislation calls "relevant conduct".
Khoury said the definitions are now considerably tighter. A single altercation with a co-worker, which once could have supported a valid claim, may no longer qualify.
"But now the definition is you have to be subjected to bullying where an individual or a group of individuals repeatedly, and the keyword being repeatedly, behave unreasonably towards the worker or a group of workers of which the worker is a member," she said.
Workload claims face a similar test. "But now we have to prove that the demands were beyond the requirements of the expected role, repeated or persistent, and not reasonable in all the circumstances," Khoury said.
The changes extend beyond eligibility. Khoury said that from 1 October 2026, treatment must be "reasonable and necessary" rather than "reasonably necessary" to be approved, with insurers required to weigh cost, duration and alternatives. HR teams tracking the proposed overhaul of NSW psychological injury claims will recognise how much of the original Bill survived into law.
Backlogs and missing guidelines slow the system
Khoury said lawyers lodged as many claims as possible before 1 July, and the surge has created delays for existing matters. Disputes that once reached a teleconference about four weeks after lodgement are now waiting months.
"Now we're lodging applications and getting a teleconference in January," she said.
Declined relevant conduct claims now follow a two-stage process. Khoury said lawyers must first seek funding from the Independent Review Office (IRO), the government body that funds legal costs for injured workers.
The NSW Industrial Relations Commission then decides only whether the conduct qualifies as a relevant event. If the insurer still refuses weekly payments, the dispute moves to the Personal Injury Commission.
Khoury also said the government has yet to publish the guidelines for assessing psychological WPI under the new scheme.
"We don't even know the criteria as to what constitutes a 25% impairment and whether or not somebody would get there and how it compares to the current method of assessment with a 15% threshold," she said.
What should HR leaders do when a complaint lands?
For employers, Khoury said, the most effective way to reduce psychological injury claims is early, consistent communication. She said many workers who contact her firm describe the employer's response, rather than the original incident, as the trigger.
"The one thing that I hear from lots of people making inquiries with us is, I wouldn't have made this inquiry if my employer just treated me fairly and they checked in to see how I was going," she said.
She advises HR teams to hear both sides of a grievance, keep regular contact with the injured worker and remove the source of conflict where possible. The reforms also introduce an intensive return-to-work program for workers assessed at 21% WPI or higher but below the new threshold, according to Herbert Smith Freehills Kramer.
"Stay in regular contact with the person that suffered the injury to set up a very transparent milestone-type return to work plan, in coordination with the injured worker's doctor, to have a very safe and graduated return to work," Khoury said.
"Really we just find that it's a situation where early on there's a huge lack of communication which causes the injured worker to feel unsafe and abandoned and hence bring a claim."
Why a higher bar does not lower employer risk
Khoury said the reforms are likely to favour employers, and she is concerned some will become less vigilant as a result.
"I think it would have more of a negative effect for the injured worker and probably a positive effect for the employer," she said. "Hopefully that doesn't happen, but that's what I think will happen."
That view sits uneasily with employers' safety obligations, which have not softened. From 1 July 2026, NSW employers must comply with the state's code of practice on managing psychosocial hazards, or show an alternative approach that is equal or better, under section 26A of the Work Health and Safety Act 2011 (NSW).
The regulator is resourced to enforce it, following SafeWork NSW's recruitment of psychosocial-focused inspectors as part of a $127.7 million investment.
The cost of psychological harm may also shift rather than disappear. Khoury expects more claims for total and permanent disability (TPD) through superannuation.
"Total permanent disability claims, I think, will be on the rise if an injured worker doesn't have the benefit of the statutory workers' comp system," she said.
With mental health claims becoming Australia's fastest-growing compensation category, Khoury said the best protection for employers is understanding the new rules. Informed employers, she said, will be better placed to manage claims and the circumstances behind them when they arise.
