Restaurants will be banned from making any deductions from staff tips under new legislation to be introduced "at the earliest opportunity".
The prime minister said "tough" new legislation would be introduced in a bid to tackle poor working practises, on the eve of the Conservative Party conference.
UKHospitality chief executive Kate Nicholls warned against legislation that would place an addition burden on businesses at an already difficult time. She said: "The hospitality sector took immediate voluntary action to improve transparency and address concerns around the treatment of tips when the issue was first raised. UKHospitality and Unite have developed an industry code of practice which deals with the fair distribution of tips among all staff, not just waiters. As a result, best practice has been widely promoted across the sector.
"Some smaller businesses may retain a small proportion of tips to cover the costs of credit card charges and processing payments - but this is a small amount and the practice has been approved by Unite. At a time when costs are mounting for operators in the sector, the government must be careful about introducing additional legislation. There is no evidence that further legislation, which may have unforeseen consequences for staff, is necessary at this time."
The announcement comes more than two years after a consultation into tips, service charges and troncs was led by then business secretary Sajid Javid.
A statement from the department of business, energy and industrial strategy said: "Unemployment is at its lowest since the 1970s and wages are rising. This legislation will ensure workers get the tips they deserve and give consumers reassurance that the money they leave in good faith to reward good service is going to the staff, as they intended - ensuring that hard work is rewarded."
Tipping has long been a disputed issue in the sector and changes to the way tips were distributed at TGI Friday's - with a greater proportion going to kitchen staff - prompted strike action at a limited number of branches earlier this year.
A spokesperson for TGI Fridays said: "We welcome the move that will bring clarity for businesses and employees regarding tipping. At TGI Fridays we care about our family, that's why 100% of tips go to our team members, as they always have done and we never deduct an admin charge."
In June Labour leader Jeremy Corbyn had pledged to introduce legislation to ensure staff kept 100% of tips.