Using tips to make up staff pay to minimum wage levels will be outlawed from October this year, it was announced today.
The Government said it will also be working towards greater transparency and clarity for consumers by introducing a new code of best practice for the hospitality industry.
The announcement is the Government's response to a consultation on the use of tips, gratuities, service charges and cover charges in payment of the national minimum wage.
The Department for Business said a majority of businesses responding to the consultation backed the proposed changes.
Employment relations minister Pat McFadden said: "When people leave a tip for staff, in a restaurant or anywhere else, they have a right to know that it will not be used to make up the minimum wage. It is also important for employers to have a level playing field on wages.
"This is a basic issue of fairness. We do not believe employers should be able to use tips meant as a bonus for staff to boost pay levels to the legal minimum."
The British Hospitality Association (BHA), which has warned that the changes may cost 45,000 industry jobs, hit out at the timing of the new law.
"We have not opposed the introduction of legislation to prevent the proceeds of the service charge being used to augment the national minimum wage, but we are concerned that the Government has decided to introduce legislation in October this year rather than wait until the recession subsides," said Bob Cotton, BHA chief executive.
"This is not the time to introduce a measure that will increase the industry's wage bill so significantly."
The Department for Business has rejected the BHA's claims that the changes will cost the hospitality industry £450m, instead estimating the cost will be around £92m.
By Daniel Thomas
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