The policy was blocked in state parliament on Tuesday when Labor and crossbench MPs united to pass a disallowance motion in the upper house.

The Berejiklian government had argued the freeze would guarantee jobs for public servants and free up funds for job-creating projects to support others who have lost work.

But the wage policy has been opposed by unions and frontline workers, including paramedics, nurses, police officers and teachers.

The Berejiklian government will now pursue the measure through the Industrial Relations Commission, with conciliation to start in Sydney on Thursday.

The pay freeze plan included a one-year guarantee of no forced redundancies for workers who weren't senior executives, and a proposed one-off $1000 stimulus payment.

Premier Gladys Berejiklian previously warned the $1000 payment would be off the table if IRC intervention was required, as well as the promise of no forced redundancies.

Asked on Thursday if the government would add to unemployment with public sector job losses, the premier said it was up to the independent arbitrator.

"Let's await to see what that determination is, I hope all parties will continue to respect each other's position," Ms Berejiklian told reporters in Sydney.

"I appreciate the arguments everybody's put forward and all the arguments are real, they're fair.

"But let's allow now the independent arbiter to make that call and we'll cross that bridge when we come to it."

The premier didn't think NSW had fully absorbed the extent of the COVID-19 economic shock.

"Please know that every decision our government takes from here on in won't be easy because we're staring down, literally, hundreds and thousands of extra people coming off JobKeeper in NSW," she said.

"That is a concern for us and we're trying to stem that as much as possible."

In a statement on Tuesday, Opposition Leader Jodi McKay said Labor would fight the state government on pay freezes "every step of the way".

Australian Associated Press