Navigating the New Thresholds: What Psychological Injury Reforms in NSW Mean for Personal Injury Lawyers

Authored by Ben Newling, Legal Writer, Practical Guidance Personal Injury NSW

Higher thresholds, fewer claims and new challenges for PI lawyers in NSW

Significant reform to the New South Wales workers’ compensation scheme is underway, with major changes to new psychological injury claims set to commence in stages from 2026 to 2029. For personal injury practitioners, these reforms will reshape both the viability of claims and the strategic approach required to run them.

This blog post explores the key changes, particularly the increased whole person impairment (WPI) thresholds, and their practical implications for lawyers acting for injured workers and insurers.

A shift in policy direction

The Workers Compensation Legislation Amendment Act 2025 (WCLAA) and the Workers Compensation Legislation Amendment (Reform and Modernisation) Act 2026 (WCLARM) reforms represent a clear policy shift toward tightening access to compensation for psychological injuries. These changes are part of a broader effort to address scheme sustainability and rising claim volumes.

For new claims, central to the reforms is a significant increase in the WPI threshold required for work injury damages claims, and entitlement to ongoing weekly payments of compensation.

From 1 July 2026, the threshold for psychological injuries required for new work injury damages claims will rise to 25% WPI, to more than 26% on 1 July 2027, and to at least 28% on 1 July 2029 (compared to the current 15%) for new claims, aligning more closely with thresholds traditionally associated with more serious physical injuries.

Key reform milestones

1. 1 July 2026: Structural and Procedural Changes:

• For new claims from 1 July 2026 (on proclamation), the reforms will begin to take effect. These changes lay the groundwork for the stricter thresholds to follow and include:
  • Cessation of weekly payments after 130 weeks unless the worker has at least 25% WPI;
  • WPI threshold for psychological injury for work injury damages claims increases to at least 25%;
  • Expanded statutory definitions of psychological hazards;
  • Refinement of “reasonable management action”.

2. 1 July 2027: Further Increased WPI Thresholds for New Claims:

• Cessation of weekly payments after 130 weeks unless the worker has more than 26% WPI;
• WPI threshold for psychological injury for work injury damages claims increases to more than 26%.

3. 1 July 2029: Further Increased WPI Thresholds for New Claims:

• Cessation of weekly payments after 130 weeks unless the worker has at least 28% WPI;
• WPI threshold for psychological injury for work injury damages claims increases to at least 28%.

Practical takeaways for lawyers

1. Fewer viable work injury damages claims: The eventual increase to a 28% WPI threshold will significantly narrow the pool of eligible new claimants. Almost all new claims will no longer qualify for work injury damages.
2. Greater focus on statutory benefits: Initial entitlement to weekly payments and medical expenses will become more limited for new claims.
3. More complex causation and liability disputes: Expanded definitions of reasonable actions of management and relevant events causing psychological injury will lead to more detailed disputes around workplace conduct and causation.
4. Increase in disputes: More work will be required in liability disputes for statutory benefits where the insurer relies on the reasonable actions of management defence.
5. Strategic considerations: practitioners should closely monitor regulatory updates.

The upcoming reforms to psychological injury thresholds mark a decisive shift in the NSW workers’ compensation landscape, with higher WPI thresholds significantly limiting access to work injury damages and some statutory benefits. As the changes take effect, staying across legislative developments and adapting practice approaches will be essential to effectively represent clients with new claims in this more restrictive environment.

LexisNexis® supports lawyers navigating these reforms through Practical Guidance Personal Injury NSW, offering step-by-step guidance, legislation, case law and practical tools for personal injury lawyers.