The carmaker and Germany's industrial union said on Friday that almost 120,000 workers would get a 2.8% pay hike in September and then another 2% in August 2017.
Volkswagen is struggling to overcome the costs of the scandal, which saw its cars equipped with software enabling them to cheat in diesel emissions tests.
The company has already earmarked £12.7bn to cover recalls and other costs for 11 million cars sold with the software globally, but worker representatives have been adamant that they should not pay the price for management's mistakes.
Last month Volkswagen reported its first annual loss since 1993, coming in at £4.3bn.
The pay rise comes amid negative inflation in Germany and the eurozone, where prices fell 0.2% in April.
Economists say higher wages and inflation in Germany would help the European Central Bank towards its 2% target. As the currency union's biggest economy, Germany would make the largest contribution in raising price levels.