If you’ve read our previous article on the NSW Workers Compensation reforms, you’ll know the changes are aimed at improving the long-term sustainability of the scheme while providing greater clarity around psychological injury claims.
One of the biggest changes isn’t necessarily what employers have to do—it’s how new psychological injury claims are now assessed.
For many business owners, that sounds complicated.
The good news? It doesn’t have to be.
In this article, we’ll explain what has changed, what it means in practice, and how you can prepare your business.
These reforms relate to workers compensation eligibility, not your ongoing work health and safety obligations.
Employers still have a legal duty under the Work Health and Safety Act to identify and manage psychosocial hazards, provide a safe workplace and respond appropriately when concerns are raised.
The reforms don’t reduce those responsibilities.
Instead, they introduce a more structured framework for determining whether a new primary psychological injury claim is eligible for workers compensation.
For new primary psychological injury claims first notified on or after 1 July 2026, compensation is only payable where three core legal requirements are satisfied.
The claim must demonstrate that:
Let’s look at what each of these means in practical terms.
The legislation now identifies certain workplace events that may give rise to a compensable primary psychological injury.
Examples include:
This doesn’t mean every difficult day at work, disagreement with a manager or stressful period automatically results in a compensable claim.
Rather, the claim needs to identify the workplace event (or events) that allegedly caused the psychological injury before the remaining legal tests can be considered.
Imagine an employee has been working excessive hours for several months. They have repeatedly raised concerns that their workload is becoming unmanageable, but little changes. Over time, they develop an anxiety disorder and submit a workers compensation claim.
In this situation, the alleged relevant event may be the excessive work demands.
The insurer would then consider whether the remaining legal requirements are also met.
The next question is whether the relevant event has a genuine connection to the person’s employment.
In simple terms, did the event arise because of work?
This could include matters relating to:
If an employee develops anxiety primarily because of significant personal circumstances outside work, there may not be the required connection to employment.
However, where the psychological injury is alleged to have arisen from repeated workplace bullying or ongoing excessive work demands, the employment connection may be much clearer.
Ultimately, this assessment is made by the insurer based on all available information.
This is one of the most significant changes.
It’s no longer enough for work to have simply contributed to the injury.
Instead, employment must be the main contributing factor.
Many psychological injuries arise from a combination of personal and workplace circumstances. The new framework requires closer consideration of the role employment played in causing the injury.
Again, employers aren’t expected to determine this themselves. Their role is to provide accurate information about what occurred, while the insurer assesses the claim against the legislative requirements.
While employers aren’t responsible for determining whether a claim is compensable, the reforms do highlight the importance of good workplace practices and documentation.
If a psychological injury claim is lodged, insurers may seek information such as:
Having clear records of conversations, decisions and actions can help insurers understand what occurred and demonstrate how concerns were managed.
It’s important not to lose sight of the bigger picture.
These reforms don’t reduce an employer’s responsibility to create a psychologically healthy workplace.
Employers must still identify psychosocial hazards, consult with workers where required, eliminate or minimise risks so far as reasonably practicable, and respond appropriately when concerns arise.
The best way to manage psychological injury claims is still to prevent workplace risks before they escalate.
Rather than waiting until a claim arises, consider whether your business is already doing the following:
The 1 July 2026 reforms haven’t changed the importance of good leadership, effective communication or psychologically safe workplaces.
What they have done is introduce a more structured framework for assessing new primary psychological injury claims.
For employers, the practical takeaway is simple.
Continue focusing on prevention, respond promptly when concerns are raised, maintain good records, and seek advice early when needed.
While the insurer will determine whether a claim satisfies the legal requirements, organisations that invest in good people practices are generally better placed to support their workers and navigate the process with confidence.
