More than 120,000 workers are set for a 10 cent increase in the national minimum wage - but the rise has sparked anger from unions and employers.
Ministers have approved the increase proposed by an advisory body on low pay that will bring the statutory wage rate to €10.20 an hour.
It will come into force from January 1.
"Since 2016, the national minimum wage has increased from €8.65 per hour to its current rate of €10.10," said Minister for Social Protection Heather Humphreys.
"Today government approved a further increase to €10.20 which will come into effect on January 1, 2021. This will benefit 122,000 low-paid workers.
"I also want to ensure that the increase in the minimum wage does not result in employers having to pay a higher level of PRSI charge solely due to this increase."
The minister said the Low Pay Commission, which helps set the rate, played an important role in improving information on low-paid and minimum-wage workers.
But officials from the Irish Congress of Trade Unions walked out of the commission last month in protest at the proposed increase.
General secretary Patricia King said it became clear to her and Mandate general secretary Gerry Light that other members on the commission would not propose a rise for 2021 over and above 1pc or 10 cent.
"We could not in conscience be party to any recommendation that did not afford the lowest-paid workers in the Republic of Ireland an increase in excess of 2pc similar to other sectors in our economy," she said.
But Neil McDonnell of small firms group ISME said increase would "achieve nothing".
"It is to our great frustration that setting of the national minimum wage is meant to be evidence-based yet never is, " he said. "Inflation is currently running at minus 1.1pc as we are in recession.
"While 10 cent per hour is not a lot in nominal terms, this means the national minimum wage is going up 2.1pc in inflation-adjusted terms.
"This makes no sense at a time of record unemployment and will not do anything real for those with low or no skills. It simply makes them more expensive to hire."