The Government has opened the door to more companies claiming subsidies to save jobs by letting an Oamaru woollen mill lay off 48 workers, then claim a subsidy to keep another 57.

Summit Wool Spinners, the country's largest independent yarn spinner now owned by Sumitomo of Japan, will get a taxpayer subsidy of about $325,000 over the next six months by promising that it will keep employing 57 workers who would otherwise have been made redundant. At the same time, it has made another 48 volunteers redundant.

It has also cut the pay of its remaining workers by a sixth by reducing their hours from 12 hours to 10 hours a day, with a normal working pattern of four days on, four days off.

But it has agreed to keep paying the remaining workers for the full 10 hours a day at normal rates, helped by the subsidy of $12.50 an hour for five hours a week for the 200 workers on the four-day shift pattern.

National Distribution Union president Robert Reid, who negotiated the deal, said it was the only way to stop another 57 workers being laid off - and was only possible because of the Government subsidy.

Summit originally intended to lay off 105 of its 300-odd workers, a move Mr Reid said would have been "devastating" for Oamaru.

He said the union could not stop the reduction in hours, which was provided for in the site's collective employment agreement in the event of a business downturn. Nor could it stop the company offering voluntary redundancy, which was accepted by 48 workers. But he said the union was determined to stop forced redundancies.

He said the company did not believe it could use the nine-day fortnight scheme because it had already made 48 people redundant and because the plant did not operate on a standard 10-day fortnight. But the union said the proposed cut in working hours from 10 hours to nine hours a day met the scheme's criteria of reducing working hours by up to 10 hours a fortnight without making any "participating employee" redundant. The 48 who had already taken redundancy were simply classed as "not participating".

The scheme allows employers to claim the subsidy for up to 10 times the number of workers who would have been made redundant.