Rail and Maritime Transport Union members have ratified a pay deal with Dunedin Railways under which all union members will be paid a living wage.
The union said its lowest-paid members will get an 18 percent wage boost under the deal.
Higher-paid members have agreed to defer their own pay rise for a year in order to let that happen.
The union's organiser, John Kerr, said a third of members were earning less than the living wage of $21.15 an hour.
Dunedin Railways is a small local rail operator, mostly catering to the city's tourism sector.
Its majority shareholder is the city council.
Mr Kerr said the deal has been negotiated over the past few weeks with both sides showing goodwill.