From July 1, 2026, NSW employers must comply with the state's Code of Practice on managing psychosocial hazards or demonstrate that an alternative approach provides an equivalent or higher standard of health and safety, under changes to section 26A of the Work Health and Safety Act 2011 (NSW).
Unlike before, inspectors can now rely more directly on breaches of the Code when enforcing psychosocial risk controls, without waiting for a worker to suffer psychological injury. The regulator also now has the resources to look: SafeWork NSW added 51 inspectors in March 2026, 20 of them dedicated to psychosocial risk, backed by a $127.7 million enforcement investment. Those inspectors have authority to conduct unannounced workplace visits and issue on-the-spot fines for hazards including stress, bullying and poor job design.
The same day, workers' compensation rules for psychological injury claims tightened. Workers can still claim for injuries caused by bullying, harassment, violence or excessive work demands - these remain defined "relevant events" under the reform - but they must now particularise specific incidents, including dates, people involved and a description of the conduct, rather than make general allegations of stress. Where the conduct is disputed, the Industrial Relations Commission must determine it occurred before a claim can proceed, according to legal analysis of the changes from Baker McKenzie.
The reforms separate two legal systems. WHS law focuses on preventing psychosocial risks before harm occurs, while workers' compensation now applies stricter thresholds for establishing liability for some psychological injury claims.
The government's reasoning is financial. The average cost of a psychological injury claim rose from $146,000 in 2019-20 to $288,542 in 2024-25, and without intervention, NSW projected premiums would rise 36% over three years to 2028 - a $1 billion annual increase. In response, a legislated freeze locks employer premium collection rates at 2025-26 levels through the 2027-28 premium year, and separately, most employers will now pay an excess covering the first two weeks of weekly payments on claims carrying a weekly entitlement.
The result is a widening gap. Employers still carry a full WHS duty to identify and control psychosocial hazards and can face enforcement action where psychosocial hazards are not adequately managed, even if no worker has yet suffered a compensable psychological injury. Two recent prosecutions show the cost of getting it wrong: a Commonwealth agency was fined $188,000 in late 2025 over an unmanaged psychosocial risk in a performance management process, and a Victorian public sector body was fined almost $380,000 in October 2023 over a toxic workplace culture, according to Lockton.
Meanwhile, workers pursuing a claim face a more demanding evidentiary bar, and employers gain an expanded "reasonable management action" defence covering performance management, restructuring and workload allocation, per Baker McKenzie's analysis. Inspector attention is concentrated where the risk is highest: healthcare, education and social assistance, alongside large businesses and government agencies, are priority targets for compliance visits, and SafeWork NSW completes a mandatory Psychosocial WHS Check on every inspection of a workplace with 200 or more workers.
Clients in those priority sectors now carry WHS prosecution risk that sits outside workers' comp entirely - brokers should use renewal conversations to review statutory liability, WHS prosecution defence costs, and employment practices liability cover, not just comp premiums.
