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New laws come into force today making it illegal for bars, restaurants and hotels to use tips to make up minimum pay.
The government said the change would promote "fairness" for staff, despite claims it will cost the hospitality industry an estimated £100 million and thousands of jobs.
Bob Cotton, chief executive of the British Hospitality Association, said individuals working in the industry would also be worse off through having to pay national insurance on more of their wages.
Estimating 5,000 jobs could go as a result, he told the BBC: "It is going to cost businesses in excess of £100 million.
"In the short term it will put jobs at risk."
But Business Secretary Lord Mandelson said customers would be "amazed" to discover that any tips they left could be used to top up wages.
He added: "When I leave a tip, I don't expect it to be used to make up the minimum wage.
"I want it to go to the person who has served me as a thank-you for their service - this is a basic issue of fairness.
"Tips are meant as a bonus, not a tool to boost pay to the basic minimum."
A code of practice will be published aimed at providing "clarity" for customers and staff as well as businesses from tomorrow.
The change comes into effect on the day that the national minimum wage rises by 7p an hour to £5.80. For 18 to 21-year-olds, the rate increases by 6p to £4.83 per hour.
Derek Simpson, joint leader of Unite, which has been campaigning to close the tips loophole, said: "There is an urgent need for the hospitality industry to be transparent in how they handle the tips and service charge money left for staff.
"The new code will help consumers see where the money left for good service is going.
"We want to see all employers sign up to the code and ensure that their staff and customers can be confident that staff are treated fairly."
The new law on tips will be enforced by Revenue and Customs officers.
Reader views (4)
........and Labour's open door immigration policy, which has allowed millions of people to enter the UK from economically depressed areas of the World is about what Gerry?
- Mark, South-East London, 06/10/2009 09:42
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Seams like the a "wait for the next election" job.
How long I wonder till the Tory party will undo this, as they will with minimum pay if given the chance. After all keeping wages for the low paid as low as possable is what the Tory party is all about.
- Gerry, Chatham KENT UK, 05/10/2009 15:55
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Bog me: I find myself in agreement with Mandy! The specious argument that low-paid hospitality workers will be worse off because they will have to pay more National Insurance is completely bonkers. Knowing what it's like to be a waitress I only ever tip in cash - and put the cash in the hand of the person who did the work (ever spotted some bloke appear from no-where as you leave the table?). But generally people should stop tipping altogether unless they get exceptional service - if they did something extra quickly or you made their job harder in some way and they still dealt with it with a smile. You would not tip an air hostess bringing your drink on a holiday fight - you'd think you'd paid enough already and it was part of her job. The penny only dropped with me when I tipped a black-cab driver after he completed the basic service of getting me from A to B in about the time I'd expect: I was a secretary on £12kpa at the time and it suddenly dawned on me he probably earned at least £40kpa - what the heck did he need tipping for as well?!
- Roz, France, 02/10/2009 08:49
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£4.83 / hr = approx £10K per year, which is apparently below the poverty line. I fail to see how anyone can survive on such a low rate. Even £5.80 only just surpasses the £12K barrier.
- Peter, Harrow, UK, 01/10/2009 09:52
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