The Government has confirmed that it will outlaw the practice of topping up minimum wage with tips.
Despite warnings from industry that many staff will actually be worse off because of added national insurance payments, the Department for Business, Enterprise and Regulatory Reform announced that all staff must be paid at least the £5.52 minimum wage as basic pay.
Business Secretary John Hutton said: "When people leave a tip, in a restaurant or elsewhere, they expect it to go to service staff and as consumers, we've got a right to know if that actually happens. This is an issue of fairness and common sense and it's one many people clearly care a lot about.
"We also want to encourage employers to make it clear how tips are distributed so that customers know where their money is going and whether or not the establishment operates a fair tipping policy."
Derek Simpson, joint leader of the Unite union, which has been campaigning on the issue, said: "It is great news that unscrupulous employers will no longer be able to use the tips left for staff to subsidise low wages. Workers in restaurants, hotels and bars across the country have waited a long time for their just deserts."
But Bob Cotton, chief executive of the British Hospitality Association, warned that the proposals have not been thought through properly.
"At present, they have a potentially highly unfavourable impact on pay for staff," he said. "The only person to gain will be the tax man."
Under the current system, tips distributed via a ‘tronc' are not subject to national insurance (NI) deductions.
But if the service charge is not used as part of the minimum wage, the whole minimum wage payment is subject to both tax and NI contributions, leaving staff many pounds a week worse off, as well as increasing costs for the employer, Cotton said.
A consultation on the Government's recommendations will be launched in the autumn and the regulations are expected to be changed next year.
By Daniel Thomas
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