Legislation in the severe injury space doesn’t sit still, and 1 July 2026 brought some of the biggest changes we’ve seen in a while — with more on the way in October. In short: psychological injury claims face a narrower gateway, permanent impairment now relies on a single assessment, and from October the bar for approving treatment and equipment gets higher.
As occupational therapists working across the severe injury space, we want to make sure the recommendations and reports we provide are aligned with the legislative framework as it evolves. Here is a practical summary of what’s changed and why it matters.
What Changed on 1 July 2026
Psychological Injury — A Narrower Gateway
Access to workers compensation for primary psychological injuries has become significantly more restricted for most NSW workers (with exceptions for coal miners, volunteers, police, paramedics, and firefighters).
From 1 July 2026, a psychological injury is only compensable where it was caused by one or more defined “relevant events” — including acts of violence, witnessing a traumatic incident, vicarious trauma, sexual or racial harassment, bullying, or excessive work demands — and where employment is the main contributing factor. Injuries caused by reasonable management action remain excluded.
Whole Person Impairment (WPI) thresholds for entitlements are also rising for psychological claims:
- More than 26% WPI from 1 July 2027
- At least 25% WPI for injuries notified from 1 July 2026
- At least 28% WPI from 1 July 2029
Medical and related treatment will be limited to 12 months after weekly payments cease, except for workers with highest needs (above 30% WPI).
For our work, this means assessments involving primary psychological injuries need to clearly and carefully document how the injury relates to defined relevant events, and how functional presentation maps to the applicable WPI thresholds.
Permanent Impairment — One Assessment, Used for Everything
A new single assessment process now applies to permanent impairment for both physical and primary psychological injuries. Only one ‘principal assessment’ may be made per injury or incident, and this assessment will be used to determine all entitlements — weekly compensation, medical expenses, lump sum, commutation, and work injury damages.
A further assessment is only permitted where there has been an unexpected and material deterioration of at least 10% since the previous assessment.
Assessments must be conducted by a State Insurance Regulatory Authority (SIRA) approved assessor, and workers are required to receive legal advice before assessment takes place.
This consolidation of the assessment process underscores the importance of thorough, well-documented functional reporting at the time of assessment.
Section 39 — Planning Ahead of the 260-Week Mark
One area where early OT involvement makes a real difference is in the lead-up to a section 39 decision.
Under section 39 of the Workers Compensation Act 1987, weekly compensation payments cease at 260 weeks unless a worker has a whole person impairment of 20% or more — in which case they continue receiving payments as a seriously injured worker. For primary psychological injuries, the WPI threshold for ongoing entitlements has now risen to 25%, as outlined above.
The 260-week mark is a significant transition point for many workers, and the decisions made around it have long-term consequences for both the worker and the claim. In our experience, OT assessment is most useful when it happens before that point.
An OT assessment ahead of a section 39 decision can clarify the worker’s current functional capacity and support needs, identify what equipment or assistive technology may be required, and provide documentation that supports a well-informed decision.
Where a worker is approaching the threshold for ongoing entitlements, a clear functional picture also supports a more accurate and defensible WPI assessment — particularly given the new single assessment process, where the principal assessment determines all future entitlements.
With the shift to a ‘reasonable and necessary’ test for treatment and equipment from October 2026, the quality of OT assessment at this stage will also directly affect what can be recommended and approved. We write our assessments with that standard in mind.
If you have workers approaching the 260-week mark who haven’t yet had a functional assessment arranged, we’re happy to discuss what would be most useful for the claim at that stage.
Coming in October 2026 — A Change That Directly Affects Treatment Recommendations
Perhaps the most significant change for our day-to-day work is coming on 1 October 2026: The test for entitlement to medical and related treatment — including equipment, assistive technology, and domestic assistance — is shifting from ‘reasonably necessary’ to ‘reasonable and necessary’.
While these terms may appear similar, the distinction matters. ‘Reasonable and necessary’ is a higher and more defined standard. It requires that a recommendation be not only clinically appropriate but proportionate, justified, and defensible within the context of the claim.
We are already working to ensure our reports and recommendations meet this standard — clearly articulating the clinical rationale, the functional need, and the value of what is being recommended relative to the client’s presentation and the scheme’s requirements.
For insurers, this means that reports and recommendations you receive from us from this point forward will be written with this test explicitly in mind.
What This Means for Referrals
These reforms represent a tightening of the legislative framework — and we think that is a reasonable direction. Our role has always been to provide honest, evidence-based assessments that serve both the individual and the scheme. The evolving legislation reinforces that approach.
If you’d like to discuss how these changes affect a specific claim or referral, get in touch — we’re always happy to have that conversation early.
Source: Personal Injury Commission NSW — Workers compensation changes to commence 1 July 2026
