The decision to lower the threshold for medium-skilled workers will mean 6,000-7,000 more will meet the criteria for "mid-skilled" than would have otherwise and will not have to leave after three years.
That backdown pleased business and tourism groups such as the Tourism Industry Association which said tourist hot spots such as Queenstown relied on migrant labour for the hospitality industry.
However, Fed Farmers imigration spokesman Chris Lewis said even under the lower threshold, the vast majority of migrant dairy farm workers would be restricted to three year's of visas before having to leave New Zealand for a year.
"Given the depth of labour shortages in rural areas this will only force out migrants who have been invested in, trained and integrated into the farm and community, to be replaced by another migrant who is new to New Zealand."
The restrictions also meant low-skilled migrants' partners and children had to meet visa conditions in their own right, making it harder for farm workers to bring families with them.
"This will reduce the competitiveness of New Zealand as a destination for motivated and qualified dairy farm workers, and take the heart out of rural communities relying on the families of migrants to provide critical mass to schools, social groups and community organisations."
He acknowledged a promise to work with the sector in the next phase of the review, but the changes Woodhouse had revealed were disappointing and would not address labour shortages in rural areas.
Woodhouse said lowering the new salary threshold for skilled migrants meant about 6,000-7,000 more migrants will qualify as "mid-skilled" - giving them a pathway to residency.
However, he denied it would impact on net migration.
"This was never about moderating the number of people coming in. The economy does that. And the last thing we want to do is choke off the number of people to fill those 10,000-11,000 new jobs that are being created."
Examples of those in the "mid-skilled" category included farming, constructions, chefs, retail managers and other hospitality jobs. Woodhouse said it meant about 40 per cent of dairy herd managers would be able to stay - up from 20 per cent.
He said the Government still expected all industries to try to get New Zealand workers first and labour market tests had to be done every time a visa was renewed.
The main objections to the initial threshold were from sectors such as farming, aged care and business groups.
There were about 38,500 people on essential skills visas and the initial modelling was that about half of those would fall into the lower-skilled category who had to return home after three years. However, when the Government redid the numbers with more recent data it emerged about 80 per cent would not make the threshold.
There was concern migrants who were working up to higher-skilled jobs but earned less than $48,859 would have been penalised because they could only stay in New Zealand for three years. To get residency required earning at least the median wage and a skilled job.
"So we've taken the pragmatic approach by reducing that threshold and that will mean a few more people will have that pathway to residence, if that's what they want."
Those workers who do not make the threshold for medium-skilled workers must leave New Zealand after three years for a "stand down" period before applying for another visa. Woodhouse said it was appropriate to require that to ensure people who might never qualify for residency did not lose touch with their homeland.
"I think it's appropriate that if people are not clearly going to have a pathway to residence, there are a number of families we know now that have become disconnected from their home countries. Indeed, we needed to respond in April by having a pathway to residence for many families like that in the South Island, particularly in the farming community."
Labour's Immigration spokesman Ian Lees-Galloway said the changes were half-baked and "tinkering around the edges".
"National was caught on the hop and all this is going to do is tinker around the edges of a bad policy. I don't think it's going to please anybody."
He said it had potential to drive down wages as employers paid the least possible to ensure migrant workers made it to the middle-skilled level.
"I don't think using wages as a proxy for skill is a poor approach anyway. What we should be doing is focusing on high-skill immigration and filling genuine skill shortages that do exist in New Zealand."
Woodhouse denied it would drive down wages, saying some being paid less than the threshold could get wage increases to push them over so employers could keep them. "We will be watching that closely." He said it was a competitive labour market and when demand was high, wages went up.
NZ First leader Winston Peters said the policy was "unfocused".
"They're tweaking away while the migration net figure goes up, not down."
The changes to the policy were welcomed by business and employer groups.
Business New Zealand chief executive Kirk Hope said the backdown on the salary threshold was helpful and welcomed by employers in the regions.
"The revised salary threshold is more realistic for migrant workers to go from a lower-skilled role to a mid-skilled role with training and more experience, and will be more workable in the regions."
He said employers would still meet their requirement to look for local workers first, but many were struggling to fill vacancies. The problem of the numbers of young people who were not in training or work should be dealt with through the education and career sector rather than cutting immigration.
"New Zealand businesses need access to both skilled and unskilled labour to be internationally competitive."
He was also pleased the Government had agreed to look at specific sectors and the regions in the future.
Kim Campbell, chief executive of the Employers and Manufacturers' Association said there had been a clear call from employers that in a tight labour market they needed flexibility to find workers and the change was practical.
The changes are:
• Lower-skilled visa holders on less than $41,538 a year will get visas for a maximum of three years and will have to leave New Zealand for a stand-down period before they can apply for another low-skilled visa.
• Low-skilled migrants' partners and children will have to qualify for visas in their own right to live in New Zealand.
• Migrants who earn between $41,538 a year and $73,299 and have jobs classified as high to medium skilled will be considered mid-skilled
• Those who earn more than $73,299 will be considered high-skilled, regardless of the job they have.
Woodhouse said the new "mid-skilled" grade recognised workers were filling genuine skill shortages and were more likely to progress once they had experience or training. It also provided more certainty for employers to plan and train their workforce.
"I want to reassure employers that the changes announced today are not designed to reduce the number of migrants coming in on temporary work visas.
"Employers will continue to be able to employ migrant workers where there are genuine labour or skill shortages."
He said the Government's plans were "pragmatic" and "responsible" compared to Opposition parties such as Labour, which has outlined policy to reduce the number of migrants by 20,000 a year, targeting low-skilled workers and students who automatically qualified for work visas after their study.
The changes to the temporary work visas would come into effect on August 28.
Further changes were likely after the next phase of a review of immigration settings which would look at sectors and regions, including seasonal work visa and concerns by primary industries about the lack of classifications for some jobs.
