2026 update – reforms now in effect
The NSW workers compensation reform package officially passed on 4 February 2026. Most of the changes align with the proposals announced in December:
- 18-month premium cap to ease cost pressures for businesses
- WPI threshold increases (25% from July 2026) for access to higher-level entitlements
- Enhanced Return-to-Work support and additional benefits for seriously injured workers
- Clarifications to the reasonable management defence for employers
- Commitments for a successor to Business Connect to support SMEs
Some details were refined in the final legislation, including the structured return-to-work program and staged WPI thresholds. We’ve added updates to the article.
The NSW Workers Compensation Scheme finances have been looking pretty shaky.
To stay solvent and cover payouts, iCare scheme premiums were set to rise sharply over the next three years for around 320,000 businesses. But as of 11 December, a new bipartisan relief agreement has been locked in.
Set to be legislated in the new year, the relief agreement will ease premium pressure and save NSW businesses hundreds of millions of dollars, at a time when rising costs are hitting from all sides.
Here’s what the New South Wales (NSW) workers compensation insurance reforms change, and what they mean for us small- and medium-sized business owners. It’s a nice pre-Christmas win!
Whole Person Impairment (WPI) threshold increasing to 25% (from July 2026)
WPI is a medical-legal rating from a specialist doctor that shows how much a worker’s work-related injury permanently affects their ability to work and live day-to-day.
A low WPI (say 5–10%) might be a relatively modest permanent loss of function from workplace injuries, whereas 25%+ is a very serious, often life-changing permanent impairment.
Under the reform, only workers at or above the 25% WPI will now qualify for certain top-tier entitlements, such as larger lump sums or access to work injury damages. This will help push premiums down as fewer people will be eligible.
18-month cap on iCare premiums (with future adjustments guided by new model)
iCare is the main government body managing NSW’s workers compensation scheme for private-sector employers.
Premiums are calculated on your total wage bill (including super, fringe benefits and some bonuses) multiplied by an industry rate, with adjustments for claims history, safety discounts and incentives.
Under the reform, average iCare insurance premiums are capped for 18 months – avoiding at least a 36% rise that was looming over the next three years. If the increase had gone ahead, one in five businesses would have potentially been forced to close.
After the cap, future premiums will be based on a new impairment-based model rather than simply chasing past cost blowouts.
Update:
The 18-month premium cap is now legislated, including a freeze on the Nominal Insurer’s insurance premium target collection rate for the 2026–27 and 2027–28 premium years. The new employer excess applies to policies issued or renewed on or after 30 June 2026, aligning with premium adjustments under the new model.
Extra benefits and upgraded return-to-work (RTW) support for workers over 20% WPI
This reform shifts resources to the more seriously injured – workers with 20%+ WPI. This means very serious, permanent impacts, such as major mobility loss, chronic pain and severe psychological conditions (stress, anxiety, depression).
The extra benefits include:
- Extended weekly payments
- Higher medical treatment/rehabilitation expenses caps
- Tailored lump sums beyond the standard scale
Upgraded RTW support includes:
- Specialised vocational rehab
- Job modification funding
- Ongoing case management
- Employer incentives to create light-duty roles suited to their impairment level
The idea is to prioritise scheme dollars on employees least likely to recover fully from their injury or illness, improving outcomes without bloating costs across all claims.
Update:
The final reforms include a structured ‘intensive’ RTW program providing an additional year (52 weeks) of medical and income replacement benefits for seriously injured workers, complementing the supports listed above.
Stronger protections for employers for the reasonable management defence
Reasonable management defence is a key defence in psychological injury workers compensation claims, such as stress from performance reviews, redundancies, rosters or discipline.
At the moment, you can challenge a psychological injury claim if it came from reasonable management action – meaning you acted fairly, in good faith and didn’t go over the top.
The upcoming reforms clarify and tighten this definition, spelling out what counts as reasonable (proper process, consultation, no malice) and may also shift some proof requirements onto the worker.
This means you’ll have a stronger position to dismiss claims when basic HR best practices are followed. This can reduce payouts and keep premiums down in borderline psych injury cases.
Update:
The final legislation clarifies how psychological injury claims are assessed, the evidence required, and strengthens employer protections under the reasonable management action defence.
Provisions for a new successor to replace Business Connect
Shut down in September this year, Business Connect was a free government-funded program designed to support small businesses in areas such as planning, marketing, finance, digital tools and resilience.
Business NSW has pushed hard for a successor alongside the workers comp premium relief, concerned over the gap in SME support, while premiums were exploding.
The provisions commit to developing a ‘new successor’. Details are thin, but it signals ongoing advisory help (possibly employment relations/WHS-focused) to ease business pain without direct comp spending.
Update:
The final reforms include a commitment to a successor program, but the exact form, timing and scope of Business Connect’s return are still under development.
Practical next steps for small to medium businesses
The new reforms give short-term iCare workers insurance premium relief, and more predictable costs – but serious injury thresholds are tighter. That means breathing room for cash flow, but also a need to step up on governance.
Here’s what to do now:
- Sit down with your broker and review insurance – Get a forward projection on premiums under the freeze, plus a view of how your industry rate might move once the cap lifts. If you’re paying premiums above $30k/year, consider a formal insurance review.
- Tighten documentation – Make sure performance management, restructures, rosters and investigations are recorded in a way that clearly shows ‘reasonable management action’ if a psych claim lands.
- Check wage and subcontractor compliance – Ensure actual wages are declared correctly using the correct WIC code and total wages and identify subcontractor payments eligible for inclusion in your premium calculation.
- Invest during the relief window – Use the 18-month window to fund better safety, leadership training, RTW processes and data (incident reporting, early intervention), so your individual risk profile looks better than the scheme average when pricing normalises.
The reforms give us a rare chance to regroup. Play it smart now, and you’ll have stronger protections, steadier cash flow and a business ready to tackle whatever comes next.
