When making a pay equity claim, employees need to find a non-female-dominated job they can compare their work to.
As well as establishing a process for employers and employees to follow to address pay equity, ministers have also decided to clarify how to choose an appropriate job for comparison when making a pay equity claim.
PSA national secretary Erin Polaczuk said Cabinet had proposed a "start close then move out" mechanism, where employees must try to find a comparison in their own business, then their industry, then their sector.
She said the PSA would now raise pay equity claims for thousands of low-paid women.
"We firmly believe women are worth 100 per cent, and with this decision the Government has acknowledged that New Zealanders agree."
The Human Rights Commission welcomed today's decision, saying it signalled the start of significant change in addressing pay equity and "the realisation of a fundamental human right".
Equal Employment Opportunities Commissioner Dr Jackie Blue said the legislation would be a "historic step forward for gender equality".
"We are strongly advocating that New Zealand follows in the steps of countries like the UK, where from 2018, businesses with over 250 employees must disclose what they are paying in salaries and bonuses to their male and female staff."
The Employers and Manufacturers Association (EMA) said the planned changes would help businesses manage a complex issue.
"To have certainty around the process and know it will be conducted under the good faith requirements of the Employment Relations Act, which employers are familiar with, is important for any commercial operation," said Mark Champion, EMA's general manager advocacy and industry relations.
Minister for Women Louise Upston said gender should not affect what people are paid.
"Occupations shouldn't be lower paid just because women make up most of the employees. The Government's response today means that employees and employers can resolve concerns about equal pay in good faith.
"In addition, there will be a pathway for resolving issues, as happens with other employment matters, including mediation and ultimately the Employment Relations Authority."
Bartlett case cleared way for today's breakthrough
The joint working group that made the recommendations was established after a recent Court of Appeal ruling.
It held that to establish equal pay for workers in the female-dominated aged care industry, their pay must be equal to workers in a similar male-dominated industry.
Lower Hutt rest-home worker Kristine Bartlett initiated the historic case when she lodged a claim for equal pay from her employer Terranova Homes and Care with the Employment Court in May 2013.
She argued that Terranova was breaching the Equal Pay Act by fixing caregiver wages at a low rate because 92 per cent of the country's 20,000 rest-home caregivers were women.
The ruling meant the Employment Court would have developed a set of principles to be observed in implementing pay equity in the aged-care sector.
Workers in other industries would also look at legal action to ask the courts to establish such a set of principles for their industry.
Unions agreed to hold off that legal action after joining the joint working group.
