Most hospitality workers – many of whom are earning the National Minimum Wage or National Living Wage – rely on tips to top up their income. But research shows that many businesses that add a discretionary service charge onto customer’s bills are keeping part or all of these service charges, instead of passing them onto the staff.

The government will make it illegal for employers to withhold tips from workers. The move is set to help around 2 million people working in one of the 190,000 businesses across the hospitality, leisure and services sectors, where tipping is commonplace and can make up a large part of their income.

This will ensure customers know tips are going in full to workers and not businesses, ensuring workers receive a fair day’s pay for a fair day’s work.

Tipping legislation will build on a range of government measures to protect and enhance workers’ rights. In the past 18 months alone, the government has introduced parental bereavement leave, protected new parents on furlough, and given millions a pay rise through a higher minimum wage.

Paul Scully, labour markets minister, said: “Unfortunately, some companies choose to withhold cash from hardworking staff who have been tipped by customers as a reward for good service.

“Our plans will make this illegal and ensure tips will go to those who worked for it. This will provide a boost to workers in pubs, cafes and restaurants across the country, while reassuring customers their money is going to those who deserve it.”

Moves towards a cashless society have accelerated dodgy tipping practices, as an increase in card payments has made it easier for businesses to keep the funds. A total of 80% of all UK tipping now happens by card, rather than cash going straight into the pockets of staff. Businesses who receive tips by card currently have the choice of whether to keep it or pass it on to workers.

The Government says today’s plans will create consistency for those being tipped by cash or card, while ensuring that businesses who already pass on tips fairly aren’t penalised.

The legislation will include:

• A requirement for all employers to pass on tips to workers without any deductions
• A Statutory Code of Practice setting out how tips should be distributed to ensure fairness and transparency
• New rights for workers to make a request for information relating to an employer’s tipping record, enabling them to bring forward a credible claim to an employment tribunal

Under the changes, if an employer breaks the rules they can be taken to an Employment Tribunal, where employees can be forced to compensate workers, often in addition to fines.