If you have been on workers compensation for a long time, you may have wondered whether you could take a lump sum and move on. For many injured workers, that option has been hard to reach. From 1 October 2026, the rules on workers compensation commutation in NSW has changed.
According to SIRA, the reforms will allow more workers to access commutations where the eligibility requirements are met. The Personal Injury Commission will also have the power to approve these agreements. This article explains what a commutation is, what is changing, and the questions to ask before you sign anything.
What is a workers compensation commutation?
A commutation is a deal between you and the insurer. You give up your right to future workers compensation payments for your injury. In return, you receive one lump sum.
In plain terms, you can “cash out” your claim. The Personal Injury Commission explains that once a commutation is accepted and paid, the worker has no further entitlement to payments for the injury, including weekly compensation and medical expenses.
A commutation is different from other lump sums you may already know about:
- Permanent impairment compensation is a lump sum for lasting damage to your body. You can receive it and keep weekly payments. Our guide to permanent impairment compensation in NSW explains how it works.
- Work injury damages is a claim against your employer for negligence. It covers past and future lost earnings. You can read more in our article on suing your employer through a work injury damages claim.
- A commutation replaces your future weekly and medical benefits with one payment.
Because a commutation ends your ongoing support, it is one of the biggest decisions you can make in a workers compensation claim.
What changes on 1 October 2026?
The changes come from the NSW Government’s workers compensation reforms. These were made by the Workers Compensation Legislation Amendment Act 2025 (NSW) and the Workers Compensation Legislation Amendment (Reform and Modernisation) Act 2026 (NSW). The Personal Injury Commission published an update on 10 September 2026 confirming the key points.
A new pathway to commute
Commutations are dealt with in section 87EA of the Workers Compensation Act 1987 (NSW).
- The existing pathway remains. Workers who meet the pre-conditions in s 87EA (1) can still commute.
- A new pathway is added under new s 87EA (2) and (2A). To use it, a worker must fall within a class prescribed in the new Part 9A of the Workers Compensation Regulation. The amount must also not be:
- Inadequate or excessive, having regard to the worker’s injury, age and general health;
- Their occupation at the time of injury;
- Their ability to compete in the open labour market; and
- Other benefits they may be entitled to, and any other relevant matter.
The Personal Injury Commission approves the deal
From 1 October 2026, commutation agreements go to the Personal Injury Commission for approval. The Commission has issued a new procedural direction, PD WC8 – Commutations, which commenced on 1 October 2026.
An updated Form 5A (Application to Approve a Commutation Agreement) will not be available in the Pathway Portal until late October. In the meantime, the Commission has asked users to lodge the existing Form 5A and include the required information in their supporting material.
According to the Commission, an application must include:
- The signed commutation agreement, in a form approved by SIRA;
- A statement from the worker confirming they have received legal and/or financial advice as required and understand the agreement, and addressing the relevant eligibility requirements;
- Evidence of the degree of permanent impairment agreed between the worker and the insurer;
- The documents exchanged and relied on in reaching the lump sum; and
- Written confirmation from the worker’s lawyer that they recommend the amount.
Where possible, compliant applications will be decided quickly by a member on the papers. A worker can withdraw an application at any time before approval. Because approval can happen quickly, give written notice to both the insurer and the Commission straight away if you change your mind.
Your permanent impairment assessment matters
From 1 July 2026, most workers are entitled to a single permanent impairment assessment for their injury. SIRA says this one assessment is used to determine all entitlements, including commutations. That makes the timing and accuracy of your assessment more important than ever. Workers now also need legal advice before an assessment takes place.
Psychological injury claims
For primary psychological injuries notified on or after 1 July 2026, new rules apply to weekly payments, treatment and work injury damages. The whole person impairment (WPI) threshold for extended benefits is:
- 25% for injuries notified on or after 1 July 2026
- 27% from 1 July 2027
- 28% from 1 July 2029
These thresholds relate to extended benefits and work injury damages. How commutation rules apply to a particular psychological injury claim depends on your circumstances, so get advice.
Our explainer on the July 2026 workers compensation reforms sets out the wider changes.
A simple example
Here is a made-up example to show how the decision can look in real life. It is not based on a real client.
Mai works in a warehouse in Fairfield. She injured her shoulder lifting stock two years ago. She has had one operation and now works light duties three days a week. The insurer tops up her wages.
Mai is tired of the paperwork and the regular reviews. She would like to use a lump sum to study bookkeeping. On the surface, a commutation looks attractive.
But her surgeon has mentioned she may need a second operation. If Mai commutes now, she will have to pay for that surgery herself. She will also lose the top-up to her wages if her hours drop.
A good lawyer would help Mai weigh these risks against the benefits. They would also check whether she has a permanent impairment claim or work injury damages claim worth pursuing first. The right answer depends on her medical outlook, her job and her plans.
That is why no two commutation decisions look the same.
Why this matters if you are already on a claim
For some people, a commutation can be a real fresh start. It can mean no more regular insurer reviews, certificates or case manager check-ins; money in hand to retrain, start a small business or pay down debt; and an end to the stress of waiting for payment decisions.
But there is another side. Once a commutation is approved and paid, you have no further entitlement to compensation for that injury, including weekly payments and medical expenses. You cannot go back to the insurer if your condition gets worse or your surgery costs more than expected.
Questions to ask before you agree
- Your future medical needs
Will you need surgery, medication or therapy for years to come? Ask your treating doctor what the future may look like. They are the right person for medical questions. - Your ability to work
Can you realistically return to work, even part-time? A lump sum must stretch across the years you might have earned wages. - Centrelink and Medicare
A lump sum can affect Centrelink payments. Medicare may also want to be repaid for injury-related costs. - Tax and super
Ask how the payment is treated and whether it affects any insurance you hold through super. Financial advice may be part of the process. - Your employment
Understand how the deal affects your job before you agree. If you have already lost your job, see our article on being terminated while on workers compensation.
Watch out for pressure
An insurer may raise a commutation because it saves them long-term costs. That is not wrong. But the figure first offered is not always the right one for you.
You should never feel rushed. Ask for time, ask for figures in writing, and get independent legal advice.
It also helps to keep your own records. Note the date of each conversation, who you spoke to and what was said. Keep copies of every letter, email and medical report.
What the other reforms mean for you
Commutations are not the only change starting on 1 October 2026. The other reforms include:
- Treatment test
The test for medical and related treatment changes from “reasonably necessary” to “reasonable and necessary.” According to SIRA, the new test applies to new claims for medical and related expenses made on or after 1 October 2026. Some existing claims continue under the old test. The change may affect which treatments the insurer agrees to pay for. - Certification by insurers’ lawyers
Since 1 July 2026, before commencing or defending certain proceedings, insurers must get a certificate from their lawyer confirming there are reasonable prospects of success. In practice, this may mean fewer weak disputes against injured workers.
Taken together, the reforms change how claims are managed and how they end. If your claim is ongoing, now is a good time to review where you stand.
How a lawyer can help with a commutation
A commutation is a legal agreement, and the Commission requires your lawyer to confirm in writing that they recommend the amount. A compensation lawyer can check which pathway, if any, you qualify for; work out what your future weekly payments and medical costs may be worth; compare the offer with other options, such as permanent impairment or work injury damages; explain the Centrelink, Medicare and tax effects; and negotiate with the insurer and prepare the application to the Commission.
In NSW, injured workers may be able to get funded legal advice through the Independent Review Office’s ILARS service. You can learn more about how the IRO can help with your claim.
Practical takeaways
- Know the date. New commutation rules start on 1 October 2026.
- Understand the trade. A commutation ends future weekly and medical payments for your injury.
- There are now two pathways. The existing s 87EA(1) conditions still apply, and a new pathway covers prescribed classes of case.
- Don’t confuse it with other lump sums. Permanent impairment and work injury damages are separate claims.
- Talk to your doctor about your likely future treatment before you decide.
- Get the numbers in writing and never sign on the spot.
- Get independent legal advice. The deal must be approved by the Personal Injury Commission, and your lawyer must recommend the amount.
Why injured workers choose Gajic Lawyers
Gajic Lawyers has helped injured Australians for more than 30 years. We act on a No Win No Fee basis, and your first consultation is free. Our technology-driven, paperless process means you can deal with us by phone, email or video, wherever you are in NSW. Telemedicine appointments are available where appropriate. From our Parramatta and Cabramatta offices, our in-house interpreters can help in Vietnamese. We will explain every option in plain English, so you can make the decision that is right for you and your family.
Thinking about a commutation, or has the insurer raised one? Call Gajic Lawyers on (02) 9890 5885 or visit gajic.com.au to book your free consultation. You can also learn more about our workers compensation lawyers in Sydney.
This article is general information only and does not constitute legal advice. For advice specific to your circumstances, please contact Gajic Lawyers.
