Workers Compensation Reform in NSW: What Not-for-Profits Need to Know

Workers Compensation Reform in NSW: What Not-for-Profits Need to Know

The Workers Compensation Legislation Amendment (Reform and Modernisation) Act 2026 has passed Parliament. Here’s what’s changing, when it takes effect, and what it means for your organisation and your people.

On 11 February 2026, the NSW Government’s Workers Compensation Legislation Amendment (Reform and Modernisation) Act 2026 received assent, officially becoming law. The reforms represent the most significant overhaul of the state’s workers’ compensation framework in over a decade.

For not-for-profit leaders, board directors, and people managers, the changes carry real operational and financial implications – particularly for organisations managing psychological injury claims, return-to-work processes, and workforce wellbeing.

This article provides a practical overview of what is changing, when each stage takes effect, and what steps organisations should be considering now.

Why This Reform Matters

• Clearer definitions and entitlements for psychological injury claims
• Stronger permanent impairment assessment processes
• Extended return-to-work support
• A phased increase in impairment thresholds over three years

What Is Changing

1. Psychological Injury Claims

The Act introduces clearer rules for primary psychological injuries; that is, mental health conditions directly caused by work, rather than as a secondary consequence of a physical injury.

Workers who are assessed at 25% or more permanent impairment (rising over time – see rollout schedule below) will be entitled to continue receiving weekly payments beyond the existing 130-week limit.

What this means in practice: Workers experiencing significant, long-term psychological harm from their work will have stronger financial protection. Organisations should expect greater scrutiny of workplace psychosocial risk factors and more clearly defined pathways for psychological injury claims.

2. Permanent Impairment Assessment

The Act strengthens the assessment process by requiring workers to obtain legal advice before commencing a permanent impairment assessment. Improvements have also been made to ensure greater consistency and fairness across assessments.

What this means in practice: The assessment process becomes more structured and transparent. Organisations should ensure their injury management and claims processes are aligned with the updated framework, and that managers understand the revised steps involved.

3. Time Limits on Weekly Payments

Weekly payments for psychological injuries will now have clearer time limits, with a defined 130-week period of support. However, these limits do not apply where a worker meets the permanent impairment threshold.

What this means in practice: There is a clearer distinction between short-term and long-term psychological injury support. Workers with less severe conditions receive defined-period support, while those with serious long-term impairment retain ongoing entitlements.

4. Return-to-Work Intensive Program

• An additional year of medical benefits and income support
• Mentoring and case management
• Tailored, individualised return-to-work assistance

Rollout Schedule: What Starts When

July 2026

July 2027

July 2029

What Should Not-for-Profits Be Doing Now?

These reforms don’t require organisations to wait until July 2026 to act. There are practical steps boards and leadership teams can take now:

1. Review your psychosocial risk management framework

With psychological injury claims now more clearly defined and supported, organisations should assess whether they have adequate controls in place to identify and manage psychosocial hazards in the workplace.

2. Update your injury management and return-to-work policies

Ensure your policies reflect the expanded Return to Work Intensive Program and the phased threshold changes.

3. Brief your board

Directors should understand the implications of these reforms for organisational liability, insurance costs, and workforce planning. This is a standing agenda item, not a one-off conversation.

4. Talk to your insurer and legal advisors

Understand how the threshold changes will affect your premiums, claims management processes, and exposure over the next three years.

5. Invest in your people

The strongest control against workers’ compensation risk is a workplace where people are supported, heard, and not pushed to breaking point. In a sector facing rising demand, workforce shortages, and remuneration constraints, this is easier said than done – but it remains the most important investment an organisation can make.

Final Thoughts

The Workers Compensation Legislation Amendment (Reform and Modernisation) Act 2026 represents a meaningful shift toward a fairer and more transparent workers’ compensation system in NSW. For not-for-profits, the reforms bring both opportunity and obligation.

The opportunity is a system that better supports your people when things go wrong. The obligation is to ensure your governance, policies, and workplace culture are strong enough to manage the risk before it reaches that point.

The Breakthrough Office works with not-for-profit boards and leadership teams to strengthen governance, risk management, and operational controls. If your organisation needs support navigating these reforms, get in touch.