Psychological injury has moved from the edge of the NSW workers compensation scheme to its centre. Serious mental health claims grew 161 percent nationally over the last decade, and in NSW they now account for around 12 percent of claim volume but roughly 38 percent of total scheme cost. The average NSW psychological injury claim rose from $146,000 in FY2019-20 to $288,542 in FY2024-25, a 97.6 percent increase in five years. That trajectory is what drove the NSW Government’s 2025-26 reform package, and it is worth understanding what actually changed and what it means for return to work practice.

What changed

The Workers Compensation Legislation Amendment Bill 2025 passed NSW Parliament on 18 November 2025, alongside a $344 million Workplace Mental Health package announced in May 2025. The key provisions:

• A new “relevant event” test now defines what can even qualify as a compensable primary psychological injury, covered in detail below.
• An 8-week expedited assessment pathway for bullying and harassment claims, intended to shorten the time these claims sit in limbo before liability is determined.
• A new Return to Work Intensive program targeted specifically at psychological injury claims.
• More than 50 additional SafeWork NSW psychological injury inspectors.
• Whole Person Impairment thresholds for weekly lifetime payments rose to 25 percent from October 2025, with a further increase scheduled for 1 July 2026. Commutations became available for WPI up to 30 percent.

The practical effect for anyone managing a psychological injury claim: the bar for lump sum entitlements has moved, the assessment clock for bullying and harassment claims has tightened, and the scheme is putting more resources into inspection and prevention rather than only claims management after the fact.

Why these claims behave differently

Three things distinguish psychological claims from physical ones, and they explain why the reform package looked the way it did. The median time off work for a mental health claim is around 33 weeks, against roughly 7 weeks for the all-injury median, close to five times longer. Median compensation paid on an accepted mental health claim is roughly four times higher than the all-injury median. And the one-year return to work rate sits far below the physical injury benchmark: NSW Treasury’s March 2025 ministerial statement cited a 40 percent one-year return to work rate for psychological claims, against 88 percent of physical injury claimants returning within 13 weeks.

The cause mix has also shifted. Harassment and workplace bullying now account for roughly a third of serious mental stress claims nationally, ahead of sustained work pressure. That shift matters for prevention as much as for claims handling: a workplace with a bullying problem cannot rehabilitate its way out of the claim volume, the underlying conduct has to change.

The “relevant event” test: what actually has to be proven now

The reform did more than move the WPI threshold. It rewrote what counts as a compensable primary psychological injury in the first place, and this is the part of the reform most likely to change how claims are certified and evidenced from day one.

Under the amended schedule, no compensation is payable for a primary psychological injury unless it was caused by a relevant event. The schedule defines a relevant event as one of the following:

The regulations can prescribe further categories, so this list is not necessarily closed. What it does close off is the broad, undifferentiated “workplace stress” claim that does not map to one of these named events. A worker who is generally unhappy, overworked in a way that does not meet the excessive work demands threshold, or dealing with ordinary interpersonal friction that does not rise to bullying, no longer has an obvious pathway to compensation under this schedule.

On top of naming the event, three conditions must all be satisfied:

1. A relevant event caused the primary psychological injury. Not contributed to, caused.
2. There is a real and direct connection between the relevant event and the worker’s employment. A tenuous or incidental link is not enough.
3. The worker’s employment is the main contributing factor to the injury. This replaces the older “substantial contributing factor” standard.

All three have to be met. Point 3 is the one worth sitting with, because it is a materially higher bar than what came before it. “Substantial” allowed for a psychological injury with more than one contributing cause, work among them, provided work was a significant factor. “Main” contributing factor asks whether employment is the leading cause, ahead of anything else going on in the worker’s life. A worker with a genuine workplace bullying claim who is also going through an unrelated family crisis will have that second factor weighed directly against the employment factor under the new test, in a way the old test did not require.

The section 11A defence and what it means in practice

A large share of psychological claims attract an insurer defence under section 11A of the Workers Compensation Act, the “reasonable management action” exclusion. Where a psychological injury is wholly or predominantly caused by reasonable disciplinary action, performance management, or a genuine redundancy carried out reasonably, the claim can be excluded. This defence is raised often and contested often. The Personal Injury Commission has overturned a meaningful share of section 11A defences and file-only insurer medical reviews at hearing, which is a signal that the “reasonable action” bar is higher in practice than insurers sometimes assume at first instance.

For employers, the practical lesson is not to avoid performance management, it is to document it properly. A poorly recorded, ad hoc process is far more vulnerable to a successful psychological injury claim than a properly documented one, regardless of whether the underlying management decision was fair.

What good return to work looks like for a psychological injury

Physical injury return to work planning translates poorly to psychological injury if applied without adjustment. A few things matter specifically here:

Confidentiality is part of the treatment, not an add-on. Session content with a treating psychologist stays private; the employer receives capacity certificates and a treatment plan summary, not clinical detail. Workers who believe their disclosures will circulate disengage from treatment.

Return to the same workplace is not always the right goal. Where the psychological injury arose from the workplace itself (a bullying pattern, an unmanaged conflict, a traumatic incident tied to the physical site), redeployment or a new-employer pathway is often the more durable outcome than a forced return to the original environment.

The first Certificate of Capacity carries more weight than in a physical claim. A vague diagnosis (“stress, off work two weeks”) without a DSM-5 diagnosis, a clear causal narrative, and specific functional limitations is the most common reason a psychological claim stalls or is disputed. Rehabilitation providers who brief the treating doctor early on what the certificate needs to contain measurably reduce dispute rates downstream.

What this means for your portfolio

• The relevant event test raises the evidentiary bar at intake. A certificate that says “workplace stress” without naming one of the schedule’s categories and mapping the “main contributing factor” test is now a weaker starting point than it was under the old “substantial contributing factor” standard.
• The WPI threshold changes affect long-tail psychological claims specifically. Any claim approaching the lifetime payment threshold should be reviewed against the new October 2025 and July 2026 figures now, not at the point weekly payments are due to cease.
• The 8-week expedited pathway for bullying and harassment claims changes the tempo of early claims handling. Evidence gathering (witness statements, HR records, prior complaints) needs to happen faster than the previous cadence assumed.
• Section 11A remains a live issue in a large share of psychological claims. Employers with a well-documented performance management process are in a materially stronger position than those without one.

How 365 Rehabilitation supports this

Our rehabilitation providers work from a shared file with the treating doctor and treating psychologist so the return to work plan reflects the clinical picture rather than a generic template, and we brief employers early on what a genuinely suitable return looks like for a psychological injury, including when redeployment is the better outcome than a return to the original site.

Want to talk through a current psychological injury claim, or plan ahead of the July 2026 WPI threshold change? Contact us at info@365rehab.com.au or on 1300 742 365

Sources:

• Workers Compensation Legislation Amendment Bill 2025 (NSW), passed 18 November 2025, and the amended schedule defining “relevant event” and primary psychological injury
• NSW Government, Protecting Workers Compensation for Future Generations, May 2025
• NSW Treasurer, ministerial statement, 18 March 2025
• Safe Work Australia, Key Work Health and Safety Statistics, 2025
• SIRA, Standard 33: Managing Psychological Injury Claims