Using tips to make up staff pay to minimum wage levels will be outlawed from October this year, the government announced today.
This will give thousands of workers fair wages and will ensure a fair and level playing field for employers and boost consumer confidence in the use of tips.
The government will also be working towards greater transparency and clarity for consumers through a new industry code of best practice.
Employment Relations Minister Pat McFadden said:
"When people leave a tip for staff, in a restaurant or anywhere else, they have a right to know that it will not be used to make up the minimum wage. It is also important for employers to have a level playing field on wages.
"This is a basic issue of fairness. We do not believe employers should be able to use tips meant as a bonus for staff to boost pay levels to the legal minimum.
"Our consultation showed wide support for these changes, including from business groups, and we are working with them to ensure that consumers get the information they need."
Today's announcement is the government's response to a consultation on the use of tips, gratuities, service charges and cover charges in payment of the national minimum wage.
The consultation received wide support for the government's plans to ensure tips are not used to make up the minimum wage - a majority of businesses responding to the consultation backed the proposed changes.
The government is working with consumer and business groups over ways of boosting clarity and information, which could include a new scheme for participating businesses to promote clear tipping practices.