Changes to the NSW workers compensation scheme commence 1 October 2026. These new changes affect how treatment expenses are assessed and expand access to commutation agreements.
New test for treatment expenses
A new "reasonable and necessary" test for medical and related treatment expenses replaces the existing "reasonably necessary" test for new claims for medical expenses compensation made on or after 1 October 2026. The change applies to all workers, including exempt workers, but does not apply to dust disease claims.
Under the new framework, treatment must:
- primarily treat the injury that is the subject of the claim
- be clinically justified
- be cost-effective and represent value for money.
The new test places greater emphasis on clinical justification and value for money, including consideration of alternative treatment options where they are available.
The regulations also identify certain treatments and services that are excluded from employer liability, including certain alternative therapies, wellness coaching services, energy healing practices, some medications, and costs associated with companion animals other than service animals.
Expanded access to commutations
The October 1 changes broaden access to commutations, allowing more injured workers to apply to commute certain future workers compensation entitlements through a lump sum settlement.
New regulations create three classes of eligible claims:
- workers entitled to weekly payments and medical expenses
- workers entitled only to medical expenses
- workers entitled to compensation for hearing loss and related medical expenses.
Eligibility requirements differ between classes but generally require an existing entitlement, recent compensation payments and agreement between the worker and insurer regarding the worker's degree of permanent impairment.
For commutations under the expanded pathway an injured worker must lodge an Expression of Interest form with the insurer within 18 months of 1 October 2026.
Workers must obtain independent legal advice before entering into a commutation agreement. Independent financial advice is required for commutations over $100,000, with insurers paying up to $2,500 towards the cost. Workers may also request funded financial advice for lower value commutations, other than for hearing loss claims.
Once a commutation is approved and paid, a worker will generally have no further entitlement to workers compensation payments for that injury, including weekly payments and medical expenses.
Personal Injury Commission approval required
From 1 October 2026, all commutation agreements will require approval by the Personal Injury Commission (PIC) before taking effect. Applications must be lodged through the Pathway Portal and accompanied by evidence demonstrating compliance with legislative and regulatory requirements. The PIC has published Procedural Direction WC8 – Commutations which provides details of the approval process and requirements for parties.
ILARS Funding for Commutations
Commutations finalised before 1 October 2026 do not utilise any of the PIC dispute pathways and the professional fee is payable pursuant to Event 3.8 in the Amending Instrument: ILARS Funding Guidelines (Amending Instrument). However, commutations approved from 1 October 2026 will utilise PIC pathways that are analogous to dispute pathways; either expedited assessment or teleconference. As such, Event 3.8 fee is unlikely to be applicable to the work done in commutation resolutions.
IRO has determined the following professional fees in the Amending Instrument will be payable for the work done by lawyers acting for injured workers who elect to resolve their matter via a commutation in the PIC:
| Activity | Funding Event |
| Negotiate commutation - unsuccessful | 2.3 - $1,800 |
| PIC approval – commutation assessed on the papers | 3.2 - $4,500 |
| PIC approval – commutation determined following teleconference | 3.4 - $6,500 |
The IRO acknowledges that some commutations may be complex to complete. Clause 4.1.6 of the ILARS Funding Guidelines 2021 provides that where a Lawyer considers that the professional fees allowed are inadequate the IRO will consider an increase in professional fees on application by the Lawyer.
An increase in professional fees will only be considered where:
- a matter has involved significant additional work due to complex issues
- there are multiple respondents, or
- there are multiple resolutions within the same proceedings or matter
Approved Lawyers are reminded that a request for a complexity uplift should be made at the conclusion of the matter prior to the preparation of a Tax Invoice. The Lawyer should provide submissions in support of the increase sought identifying the complexities and any additional work undertaken. Any increase in professional fees is at the discretion of the IRO.
Further information
The changes outlined above are being implemented by SIRA. For detailed information about the reforms, implementation timeframes and supporting resources, please visit the relevant SIRA webpages.
IRO will continue to work closely with SIRA and stakeholders as these changes are implemented.
If you have questions about how these changes work with IRO services, please contact [email protected].