Overview of the Proposed Reforms
In early 2025, the NSW Government announced proposed changes to the state’s Workers Compensation scheme — reforms that have sparked significant concern among unions, mental health professionals, and injured workers. While the stated aim is to improve financial sustainability and address longstanding issues with the insurer icare, the proposed changes disproportionately affect people with psychological injuries.
Key changes include:
- Higher Threshold for Psychological Injuries:
Workers will now need to demonstrate a permanent impairment of at least 31% to access lump sum compensation for psychological injuries. Under the current scheme, psychological injury claims rarely reach this threshold, meaning that up to 95% of workers with mental health claims may no longer be eligible for compensation. - Delayed Access for Harassment and Bullying Claims:
Workers who lodge claims involving bullying, racism, or sexual harassment will now need to pursue these matters through legal channels (such as tribunals or courts) before their workers compensation claim can even be considered. This introduces significant procedural delays — and for many, legal costs and emotional burdens they may not be able to bear. - Redefinition of Psychological Injury:
The reforms may also involve narrowing the definition of what constitutes a psychological injury. This could mean that stress arising from heavy workloads, poor management, or vicarious trauma — all common in healthcare, education, and frontline work — could be excluded from compensation eligibility.
These changes risk making the already complex and daunting process of lodging a psychological injury claim even more inaccessible. And crucially, they come at a time when mental health support in workplaces should be expanding, not contracting.
Delayed Access to Support and Treatment
One of the most concerning aspects of the proposed reforms is the delay in access to treatment for workers experiencing psychological injury. Under the current system, a worker can access provisional liability — limited early support such as medical treatment and psychology sessions — while their claim is assessed. However, the new changes could slow this process dramatically, particularly for those whose claims involve bullying, discrimination, or harassment.
What does this mean in practice?
- No therapy until you prove your trauma.
If a worker experiences harassment or racial abuse at work, they may now need to go through lengthy legal proceedings to prove that what happened qualifies as a compensable injury — before they can access treatment. For someone already experiencing anxiety, PTSD, or depression, the idea of facing a tribunal or court process without psychological support is not only unfair — it’s potentially damaging to their recovery. - Early intervention matters.
Evidence consistently shows that early access to support leads to better mental health outcomes. Delaying care increases the risk of symptoms becoming entrenched or chronic. What could have been a manageable adjustment disorder or early-stage anxiety may escalate into long-term trauma and disengagement from the workforce. - Financial stress compounds psychological distress.
Without provisional access to wage support or subsidised treatment, workers may find themselves forced to pay out of pocket for care — or go without. Many people simply don’t have the resources or the clarity of mind to navigate this on their own, especially if they’re already in a vulnerable state.
In effect, these reforms shift the burden back onto the individual — asking them to prove their suffering to multiple systems before they are deemed worthy of care. It’s a setup that undermines recovery, and it’s out of step with the broader mental health reform agenda aimed at early intervention and psychological safety in workplaces.
Disadvantage to Workers and Employment Implications
The delays and restrictions introduced by the proposed reforms don’t just impact workers’ health — they also affect their employment, financial security, and long-term livelihood. For many, the lack of timely support sets off a chain reaction that leads to workforce exit, not recovery.
How workers are disadvantaged:
- Falling through the cracks of the system
When mental health support is delayed or denied, workers may become unable to perform their duties — not because of lack of will, but because of untreated psychological injuries. Without access to treatment or workplace accommodations, they may go on extended leave, face performance management, or be forced to resign or retire early. This isn’t just a loss for the individual — it’s a preventable loss of skill and experience from the workforce. - Job loss and its ripple effects
Workers who lose their job due to a psychological injury often face barriers to re-employment, particularly if they’ve been left unsupported during the critical early stages of recovery. Stigma around mental health remains a factor in many industries, and without compensation, retraining support, or job placement services, workers are left to navigate this alone. - Increased reliance on welfare systems
Without access to workers compensation entitlements, some individuals may be forced onto Centrelink payments, transferring the burden from the workers compensation scheme to the broader welfare and health system. This shift is not only inefficient — it also disconnects workers from employer accountability and return-to-work planning. - Intersection with vulnerable workers
These changes will disproportionately affect already marginalised workers: women, First Nations people, LGBTQIA+ individuals, neurodivergent workers, and those in lower-paid or casual roles. These are the very groups most at risk of psychological injury from workplace bullying, discrimination, and harassment — and the least likely to have the resources to fight a prolonged legal battle.
In short, the reforms risk creating a two-tiered system — where physical injuries are supported, and psychological injuries are sidelined. The result? More workers pushed out of jobs they might have otherwise returned to, and a mental health system left scrambling to pick up the pieces.
Broader Industrial Relations Concerns
The proposed reforms to the NSW Workers Compensation scheme don’t just affect individual workers — they have significant implications for the broader industrial relations landscape in Australia. By introducing additional hurdles for psychological injury claims, the government risks eroding trust in workplace systems and setting a concerning precedent for how mental health is treated in employment law.
Key concerns emerging from unions and advocates:
- Undermining hard-won protections
Unions and worker advocacy groups have criticised the reforms as regressive. They argue that the proposed changes undermine decades of work to achieve mental health parity in the workplace — treating psychological injuries as less legitimate, less urgent, and less deserving of support than physical ones. - Erosion of employer accountability
These reforms may unintentionally give employers less incentive to prevent psychological harm in the first place. If claims related to workplace bullying or harassment are harder to prove, or delayed by legal processes, the emphasis shifts from prevention to defence. This runs counter to the growing body of regulation around psychosocial risk, such as recent amendments to the WHS Act. - Delays and cost burdens shifting to federal systems
Critics also warn that denying or delaying access to compensation doesn’t make the problem disappear — it simply moves it elsewhere. Workers left without treatment or income will turn to Medicare, public mental health services, and Centrelink, placing further pressure on systems already stretched. It’s a short-term budget fix with long-term social costs. - Increased industrial conflict
These changes are likely to spark increased disputes between workers, employers, and insurers, as the burden of proof for psychological injuries rises. Already under-resourced unions, advocacy services, and legal aid organisations will bear the brunt of supporting workers through complex appeals and tribunal processes. This slows everything down — including recovery, return to work, and workplace resolution.
Ultimately, these reforms risk sending the message that psychological injuries are inconvenient rather than legitimate, and that the system is more interested in cost control than care. At a time when workplace mental health is finally being taken seriously, this shift risks undoing progress and alienating the very people the system is meant to protect.
The Cost of Delay is Too High
The NSW Workers Compensation reforms come at a time when mental health awareness is increasing — but policy decisions like this risk leaving workers without timely support, without protection, and without hope.
While the government frames these changes as necessary for financial sustainability, the real cost will be borne by workers:
- Those who are unable to access treatment early
- Those pushed out of jobs they could have recovered in
- And those who are told their suffering doesn’t qualify as “real enough” to count.
These reforms risk entrenching a system where psychological injury claims are too complex, too slow, and too hard to access — leading to worse outcomes for workers and higher social costs down the line. They also send a dangerous message: that when it comes to mental health at work, prevention and care are optional.
As professionals working in mental health and workplace wellbeing, we urge policymakers, unions, and employers to reconsider the direction of these changes. Recovery shouldn’t depend on a court ruling or an arbitrary impairment percentage.
It should begin the moment someone says, “I’m not coping.”
Because the sooner we act, the better chance we have of helping them stay well — and stay at work.
