The new law comes into effect on the same day as increases to national minimum wage rates, from £5.73 to £5.80 per hour for employees over 22 and from £4.77 to £4.83 per hour, are introduced.
Business Secretary Lord Mandelson, who was at Brighton restaurant Table yesterday to introduce the changes, said: “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.That’s why the government has closed this legal loophole."
A new code of practice on tipping to ensure businesses are clear about the changes has been drawn up with the support of workers union Unite, the British Hospitality Association, the CBI, Consumer Focus and other stakeholders.
Unite joint general secretary Derek Simpson urged the industry to make it clear to staff and customers what their tipping policy is from today and sign up to the code.
He said: "There is now an urgent need for the hospitality industry to be transparent in how they handle the tips and service charge money left for staff. The Code launched today will help consumers see where the money left for good service is going.
"Unite is looking to the sector to adhere to the best practice principles and ensure that customers have the information they need to make an informed choice before they leave a tip or service charge."
Despite being welcomed by waiting staff, some businesses in the industry fear that the changes will have a big impact on wage costs and the BHA warned that bringing legislation into force during a recession could lead to job losses at restaurants, hotels and pubs already struggling to stay afloat.
However, Gillian Thomson, managing director of Company of Cooks, which operates Table in Brighton, said the move could only be positive for the industry.
She said: "To attract the best calibre of people and create the best working environment you need to look after your people.
"We've always paid minimum wage as the minimum and the tips have always been passed onto staff. We believe good service should be rewarded.
"This can only improve the perception of the hospitality industry outside the industry, because people can see that there's the opportunity to earn more than the minimum wage. If you do well, you can now see the benefits."
BHA's Code of Practice on Discretionary Tips and Service Charges