Public servants will get salary adjustments of an average of 11,5%, according to an agreement signed on Monday.
Congress of South Africa Trade Unions (Cosatu) president Sdumo Dlamini told journalists in Pretoria the deal was a "watershed and landmark achievement".
"Through the commitment of parties to constructive engagement and continuous dialogue the agreement was reached speedily."
Initially labour had asked for an adjustment of 15% which the government countered with 8,5%.
However, through negotiations and in under six weeks, the government raised its offer to an average of 11,5% - on a sliding scale of between 10% and 13%. The adjustments would be backdated to July 1 this year.
Dlamini said the initial 15% tabled by labour had been an "illusionary expectation".
"This settlement agreement, this offer actually met precisely our demand."
The benefits to employees, as agreed by the occupation specific dispensation as well as continuous negotiations on employees' conditions, would see public servants benefiting more than many of their counterparts in the private sector, he said.
Dlamini said the agreement was the speediest in the 15 years of democracy and showed the government's commitment, change in administration and attitude when working with labour.
"We are not continuously fighting against each other," he said, adding that recent strike action had not played a part in moving negotiations along.
"In 2007 there was a 33-day strike. This time around it has never happened. It is a major achievement in a very short space of time."
Public service and administration department spokesperson Sefako Nyaka agreed that while the process had been "very difficult" it was also very quick.
"Both parties entered into negotiations with pragmatic expectations. There was continuous dialogue, negotiators on both sides were committed.
"We wanted to do things differently and I think we have achieved that."
Minister Richard Baloyi and Dlamini had been in contact with each other throughout.
"We were even working with him [Baloyi] at night. He would never hesitate to give us his ear," said Dlamini.
Dlamini however also criticised the media - only two journalists attended the briefing in Centurion - for staying away from the press conference.
"For some this agreement is not newsworthy. We would have believed that if we were going to announce we were going on strike and there would be a dispute, they [the media] would be flooding the house.
"This [the speedy process] really has not been happening in the recent past, which is why we think that is not newsworthy to our friends in the media."
After signing the agreement, both the government and labour representatives popped open sparkling wine and toasted the achievement.
The parties had agreed that salary negotiations for 2010/2011 would now be followed with a dateline for finalisation by October 30. This would be prior to the government's budgetary processes.
They also agreed to embark on a comprehensive review of remuneration policy, benefits and allowance systems within the public service.
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