Introduction
Workers compensation is a critical safety net that protects Australian employees who suffer work-related injuries or illnesses. This compulsory insurance system provides financial support, medical coverage, and rehabilitation services to help injured workers recover and return to employment. With significant reforms introduced in New South Wales in December 2025, understanding how workers compensation works has never been more important for both employers and employees.
What is Workers Compensation?
Workers compensation is a mandatory insurance scheme that covers employees who are injured at work or develop a work-related illness. The system operates across all Australian states and territories, though each jurisdiction administers its own scheme with unique eligibility criteria, benefit levels, and claims procedures.
The primary purpose of workers compensation is threefold: to provide injured workers with income replacement while they recover, to cover medical and rehabilitation costs, and to facilitate safe return to work. For employers, the scheme offers protection against direct liability for workplace injuries while promoting safer work environments through premium incentives.
Types of Workers Compensation Benefits
Workers compensation schemes provide several categories of benefits depending on the nature and severity of the injury:
Weekly income payments
Weekly income payments replace a portion of lost wages while you’re unable to work. These payments typically cover between 80-95% of your pre-injury earnings, subject to maximum weekly amounts that vary by state. The duration of these payments depends on factors including your degree of impairment and capacity to return to work.
Medical and hospital expenses
Medical and hospital expenses cover treatment directly related to your work injury or illness. This includes doctor consultations, hospital stays, physiotherapy, psychology services, prescribed medications, and necessary medical equipment. Most schemes require you to use approved medical providers to ensure coverage.
Rehabilitation
Rehabilitation and return to work services help you recover and resume employment. This may include physical rehabilitation, occupational therapy, workplace modifications, job retraining, and graduated return to work programs. These services emphasise recovery and workforce participation rather than ongoing dependency on compensation.
Lump sum payments
Lump sum payments for permanent impairment are available when an injury results in lasting physical or psychological damage. These payments require medical assessment to determine the degree of whole person impairment, and eligibility thresholds vary significantly between jurisdictions.
Property damage compensation may cover items like glasses, hearing aids, or clothing damaged during a work incident, though this is a less common benefit category.
How to Make a Workers Compensation Claim
The claims process requires prompt action and proper documentation. Following these steps will help ensure your claim is processed efficiently:
Step 1: Notify your employer immediately. Report the injury or illness to your supervisor or manager as soon as possible. Your employer must record the incident in their Register of Injuries, creating an official record of what occurred. Delays in reporting can complicate your claim.
Step 2: Seek medical attention. Visit a doctor who can assess your condition and provide appropriate treatment. Ask your doctor to complete a Workers Injury Claim Form, which documents the nature of your injury and its connection to your work. If you need time off work, request a Certificate of Capacity that specifies your work limitations.
Step 3: Submit your claim. Provide the completed claim form, Certificate of Capacity, and any medical bills or receipts to your employer. Your employer will forward these documents to their workers compensation insurer for assessment. Keep copies of all documentation for your records.
Step 4: Cooperate with the insurer. Respond promptly to reasonable requests for information from the insurer. This may include attending medical examinations, providing additional documentation, or participating in rehabilitation assessments. Your cooperation is essential for claim approval and ongoing benefits.
Step 5: Focus on recovery and return to work. Most schemes encourage returning to work as soon as it’s medically safe to do so, even in a modified or reduced capacity. This approach benefits both your recovery and long-term employment prospects.
Workers Compensation in New South Wales
New South Wales operates under two principal pieces of legislation: the Workers Compensation Act 1987 and the Workplace Injury Management and Workers Compensation Act 1998. These laws establish when an injury is compensable, define available benefits, and outline obligations for all parties involved.
The State Insurance Regulatory Authority (SIRA) regulates the NSW scheme, while approved insurers deliver coverage to employers. When disputes arise regarding claims, medical assessments, or benefit entitlements, the Personal Injury Commission provides independent resolution. This Commission plays a vital role in ensuring fair outcomes and efficient dispute management within the NSW system.
December 2025 NSW Workers Compensation Reforms
In December 2025, the NSW Government and Opposition reached a landmark bipartisan agreement to reform the state’s workers compensation scheme. These reforms address rising scheme costs, particularly for psychological injury claims, while maintaining support for genuinely injured workers and ensuring long-term financial sustainability.
Overview of the Bipartisan Deal
The reforms balance competing priorities: managing escalating scheme costs, preventing sharp premium increases for employers, and preserving adequate support for injured workers. The package includes both immediate relief measures and structural changes to benefit eligibility and return to work programs.
Key Changes Explained
Premium Freeze
Average workers compensation insurance premiums will be frozen for 18 months. This measure prevents significant projected increases that would have impacted business costs and provides short-term budget certainty for NSW employers across all industries.
Whole Person Impairment Threshold Adjustment
For psychological injury claims, the Whole Person Impairment (WPI) threshold is increasing to 25 percent, with provisions allowing further increases over time. This change aims to limit long-term scheme liabilities while preserving access to benefits for workers with severe psychological injuries. The higher threshold means that workers with less severe psychological conditions may face greater difficulty accessing ongoing compensation.
Enhanced Return to Work Program
A new Return to Work program offers eligible injured workers an additional year of medical treatment and income support beyond standard entitlements. This program emphasises rehabilitation, recovery, and reintegration into suitable employment. The goal is to improve recovery outcomes and reduce long-term dependency on compensation payments through proactive support.
Implications for Employers
Employers should take several actions in response to these reforms:
Review insurance budgets. While premiums are frozen for 18 months, confirm current settings with your insurer and plan for potential adjustments when the freeze ends.
Update HR and safety policies. Strengthen workplace mental health initiatives, psychological risk management, and return to work procedures to align with the new framework.
Monitor legislative implementation. Stay informed as the reforms pass through parliament and regulations are finalised, as additional details may affect compliance obligations.
The premium freeze provides immediate cost certainty, but employers must still maintain effective injury prevention strategies and prompt claims management to control long-term costs.
Implications for Employees
Workers should understand how these changes affect their rights:
Higher thresholds for psychological injuries
If you suffer a work-related psychological injury, you may need to demonstrate more severe impairment (25% WPI) to access long-term benefits including lump sum payments. This makes comprehensive medical documentation even more critical.
Extended support opportunities
The new Return to Work program may provide you with an additional year of medical treatment and income support, creating more time and resources for recovery and rehabilitation.
Importance of early action
Prompt reporting of injuries, thorough medical documentation, and active participation in rehabilitation programs will be increasingly important for claim success under the reformed system.
Frequently Asked Questions
Will my business’s premium increase because of these reforms?
For most NSW employers, premiums are frozen for 18 months under the December 2025 agreement. Longer-term premium movements will depend on subsequent legislative changes, scheme performance, and claims experience.
What’s the difference between workers compensation and WorkCover?
Workers compensation refers to the insurance scheme itself, which exists across Australia. WorkCover was the former name of the NSW regulator. While the term is still commonly used, the current regulatory body is the State Insurance Regulatory Authority (SIRA).
What is the average workers compensation payout?
There is no standard payout amount. Compensation varies significantly based on injury type, severity, the worker’s earning capacity, medical evidence, and applicable state legislation. Each claim is assessed individually based on its unique circumstances.
Conclusion
Workers compensation provides essential protection for Australian workers while helping employers manage workplace injury risks. The December 2025 NSW reforms represent a significant recalibration of the scheme, balancing financial sustainability with worker support. Both employers and employees should stay informed about these changes, maintain accurate documentation, and prioritise early intervention and rehabilitation to achieve the best outcomes under the reformed system.
