Psychological injury at work is now the fastest growing and most expensive category of workers compensation claim in Australia, and the law around it is changing quickly, so employers who treat it like a physical injury are exposed. This article explains what counts, what the data shows, and what employers and brokers should do.
What counts as a psychological injury claim
A psychological injury is a diagnosed psychological or psychiatric disorder, conditions such as PTSD, anxiety and depression, not ordinary stress or dissatisfaction. Safe Work Australia confirms a worker may receive compensation for a psychological injury where they meet the scheme's definition of a worker and work is a significant contributing factor to the injury.
The claim also has to clear a further hurdle that physical claims don't: if the injury resulted from reasonable action taken by the employer, it may not be compensable. More on that below.
Why psychological claims are the fastest growing and most expensive
The trend is clear in the national data. Safe Work Australia's Psychological health in the workplace report found mental health conditions accounted for 9% of all serious workers compensation claims, a 36.9% increase since 2017–18. Its more recent Key Work Health and Safety Statistics Australia 2025 shows the share has since risen to around 12% of all serious claims, with the number of serious mental health condition claims reaching 17,600 in 2023–24.
They also cost more and take longer. In 2020–21, Safe Work Australia data showed the median time lost for a mental health condition was 34.2 working weeks per serious claim, compared with 8.0 working weeks for all injuries and diseases, more than four times longer. The median compensation paid was $58,615 per serious claim, compared with $15,743 across all injuries and diseases, more than three times higher. Safe Work Australia's 2025 statistics show those figures continuing to climb, with median time lost of about 35.7 weeks and median compensation of $67,400 for mental health claims, against a $16,300 median across all other claim types.
The reason this matters for employers: psychological claims are the long tail, high cost claims that put the most pressure on premiums, which is why brokers watch them so closely at renewal. The Claim Cost Calculator shows what that premium loading adds up to over several renewals.
Primary vs secondary psychological injury
A primary psychological injury arises directly from a workplace event or events, for example exposure to a traumatic incident, or bullying. A secondary psychological injury develops as a consequence of another injury, most often a physical one: the worker's recovery stalls, frustration and low mood set in, and a psychological factor becomes the real barrier to return to work. Secondary psychological factors are one of the most common reasons an apparently simple physical claim becomes a long tail claim.
The reasonable management action exclusion
Australian schemes draw a line between injury caused by workplace events and injury caused by legitimate management. In NSW, section 11A of the Workers Compensation Act 1987 provides that no compensation is payable for a psychological injury that was wholly or predominantly caused by reasonable action taken by the employer with respect to transfer, demotion, promotion, performance appraisal, discipline, retrenchment, dismissal, or the provision of employment benefits.
Two points matter for employers. First, the employer carries the onus of showing the action was both within one of those categories and reasonable. Second, the defence often fails, because injuries are usually multifactorial, or because the action wasn't handled reasonably. Good documentation of performance and disciplinary processes is what makes the difference.
Psychosocial hazards as a driver
Prevention now sits inside work health and safety law. Safe Work Australia's model WHS Regulations and its model Code of Practice: Managing psychosocial hazards at work require a PCBU (a person conducting a business or undertaking, essentially the employer) to eliminate or minimise psychosocial risks so far as is reasonably practicable, applying the hierarchy of controls.
A psychosocial hazard is anything in the way work is designed, managed or carried out that can cause psychological harm, for example bullying, harassment, high job demands, low job control or exposure to trauma. Most states have adopted these obligations; Victoria's own psychological health regulations commenced on 1 December 2025. The practical message is that regulators now expect psychosocial risk to be managed with the same rigour as physical hazards.
The NSW psychological injury reforms: what is confirmed as law
NSW has made the most significant changes in a decade, through two Acts: the Workers Compensation Legislation Amendment Act 2025 (assented 24 November 2025) and the Workers Compensation Legislation Amendment (Reform and Modernisation) Act 2026 (assented 11 February 2026). The changes are commencing in stages. An initial tranche commenced on 27 March 2026, and the substantive psychological injury changes commenced on 1 July 2026.
From 1 July 2026, for a primary psychological injury first notified on or after that date, SIRA confirms compensation is only payable where the injury was caused by a "relevant event" or series of relevant events (which include violence, bullying, sexual or racial harassment and excessive work demands), there is a real and direct connection between the event and employment, and employment is the main contributing factor. Where the predominant significant cause was reasonable management action, no compensation is payable.
For "relevant conduct" claims, those involving bullying, harassment or excessive work demands, the insurer has 42 days to decide liability, and the worker can receive interim weekly payments at 75% of pre-injury average weekly earnings plus up to $7,500 in medical treatment during that period. From 1 July 2026, the whole person impairment threshold to continue weekly payments beyond 130 weeks and to pursue work injury damages for a primary psychological injury rises to at least 25%, with phased increases in later years. An earlier proposal to lift the threshold to 31% was not adopted; the enacted figure is 25%. SIRA confirms the threshold to access lump sum compensation remains at 15% whole person impairment.
Two things to flag. The new psychological injury rules do not apply to exempt workers (police, paramedics and firefighters), coal miners or volunteers, and they don't apply to secondary psychological injuries flowing from a physical injury. And the change to the medical treatment test, from "reasonably necessary" to "reasonable and necessary", is confirmed to commence later, on 1 October 2026, so it is not yet in force. These rules apply in NSW; other states differ, so check the scheme that covers your workforce.
Practical employer steps for early intervention
The evidence points one way: act early, and name the psychological factor rather than working around it.
- Respond quickly and calmly to any notification of a psychological injury or complaint, and keep the worker connected to the workplace.
- Manage psychosocial hazards proactively: assess them, control them, and document what you did.
- Keep clean records of performance and disciplinary processes, so reasonable management action can be shown to be reasonable.
- Bring in specialist support before a claim drifts, especially where a secondary psychological factor is stalling a physical recovery.
Tell us where the claim is stuck and we'll tell you plainly whether we can help. Call 1300 477 662 or reach us through our contact page.
Frequently asked questions
What is a psychological injury at work?
A diagnosed psychological or psychiatric disorder, such as PTSD, anxiety or depression, where work is a significant contributing factor. Ordinary stress or dissatisfaction is not enough.
Are workers compensation stress claims covered?
A claim for a diagnosed psychological condition can be covered where work is a significant contributing factor, but not where the injury was wholly or predominantly caused by reasonable management action.
What is reasonable management action?
Legitimate action such as performance appraisal, discipline, transfer or dismissal, carried out reasonably. In NSW, an injury wholly or predominantly caused by such action is not compensable, and the employer must prove it.
What are psychosocial hazards?
Aspects of how work is designed, managed or carried out that can cause psychological harm, including bullying, harassment, high job demands and exposure to trauma. WHS law requires employers to manage them so far as is reasonably practicable.
