The Government will let employers offer staff a cash payment to replace the fourth week of their annual holidays, reversing a crucial element of the previous Government's Holidays Act.

Labour's law made it illegal to pay cash in lieu of the holiday entitlement and union leaders yesterday predicted the change would result in most workers having to settle for a return to three weeks of annual leave.

Prime Minister John Key yesterday said he intended pushing ahead with a plan to let employees exchange their fourth week for money.

"I can't see any reason why an employee shouldn't have the entitlement to take the cash as opposed to the fourth week off," he said.

But unions are concerned the move - part of National's election policy - marks the start of a return to a standard three-week entitlement.

Council of Trade Unions national secretary Helen Kelly said employee choice was dubious language for many workers.

"We are concerned that the norm will be three weeks leave by the time this Government leaves office," she said.

Asked if three weeks holiday was enough, Mr Key said: "It depends - some people don't want to take three weeks, some people want to take six weeks. It depends on the individual."

Unions say it puts four weeks leave under threat, because workers will be pressured into the swap by their employer or for financial reasons.

Businesses say many employees will jump at the chance of extra cash.

Mr Key said the sell-back would have to be agreed between employer and employee.

A spokesman for Labour Minister Kate Wilkinson last night said it was hoped to have the swap in force by April next year.

The Labour Government increased the annual leave entitlement from three to four weeks two years ago, bringing New Zealand into line with Britain and Australia.

Engineering, Printing and Manufacturing Union national secretary Andrew Little - who is also Labour Party president - said workers would end up having very little choice.

Business New Zealand chief executive Phil O'Reilly said being able to swap meant employers could still get the productivity even though they paid out the extra week's wages - effectively a 2 per cent rise on the employee's annual salary.

Mr Key said he did not believe employers would pressure workers to swap leave for money "as they are still paying for the cost of that fourth week".