The statutory minimum sick day allowance will be doubled to 10 days and the minimum wage increased to $20 if Labour is re-elected.
But its political opponents have slammed the policy as showing how "out of touch" Labour is with small businesses, which couldn't afford the extra costs in a recession.
Labour's workplace relations and safety spokesperson Andrew Little yesterday unveiled the election pledge and committed to making the legislative changes to increase workers' sick leave within the party's first 100 days in government.
The party also committed to working towards pay equity, strengthening employment legislation and bringing in Fair Pay Agreements and creating better protection for vulnerable workers.
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Covid-19 had shown how important it was for workers to stay home when they were sick and doubling the statutory minimum would let them do this and give parents flexibility to look after ill children, Little said.
Many employers already gave their staff more than the minimum five but sectors low wage sectors, like horticulture, were lagging behind, he said.
A cleaner at the National Library, Mareta Sinoti, who was at the policy announcement and is an E Tū union member said five days sick leave was not enough because "you don't get sick once a year".
"If we had 10 days sick leave, I would not need to worry as much and my family will know that I don't have to work when I am sick and I can stay home and get better.
"If I'm sick and I ring the company and they say, 'No sick leave' then that means leave without pay - how can I survive with my family?"
As well more than 85,000 Kiwis could be in for a pay rise, with Labour planning raise New Zealand's minimum wage.
During the coalition Government's first term, it went up from $15.75 to $18.90. If re-elected, Labour plans to raise it to $20 per hour in 2021.
Little said it is "time to leave behind New Zealand's low-wage culture".
"Investing in our people needs to be a key part of our economic recovery from Covid-19. We want a productive and highly skilled workforce where everyone shares in the benefits of economic growth."
The Green Party supported the policy and has also pledged to make the minimum sick leave allowance 10 days.
National leader Judith Collins said the duo of increasing minimum wage and sick leave entitlements showed "how out of touch" Labour was with small businesses, which would be "crippled".
"This policy is an old-fashioned approach to dictating employment conditions that doesn't reflect modern, flexible working practices."
"It will only make it harder for workers to keep their jobs."
Act leader David Seymour said Labour "isn't just cutting open the golden goose, they're wringing its neck" with the workplace policy.
But Little said small businesses couldn't afford another lockdown and supporting people to stay home if they were sick would help avoid that.
Labour would also legislate to make businesses report on pay equity to make sectors' remuneration more transparent across gender, age and ethnicity. This could be done anonymously, he said.
It also wants to implement Fair Pay Agreements, set minimum terms and conditions of employment for all workers in an industry or occupation and ensure dependent contractors can bargain collectively and require employment contracts.
It also plans to recognise security guards as vulnerable workers and raise the age for workers allowed to perform hazardous work from 15 to 16 years old.
Labour also plans to strengthen the Employment Relations Act to make it harder for collective agreements to be undermined.
"Workers play a key role in getting our economy moving. We cannot grow successful businesses without a strong and thriving workforce," said Little.