Hotels, bars and restaurants across the UK have been warned that legislation coming into force in the autumn will prevent them from using tips and service charges to “top up” staff wages.

Sharon Latham, a partner in the employment law team at Top 50 law firm Clarke Willmott LLP, says that from 1st October, it will be against the law to use staff tips to meet payroll obligations under the National Minimum Wage (NMW).

“Currently, the National Minimum Wage Regulations 1999 say that service charges, tips, gratuities and cover charges that are not paid to workers through an employer's payroll do not count towards the NMW,” she said.

“By contrast, when such payments are collected by the employer and paid through the payroll, these amounts do count towards discharging the employer's liability to pay the National Minimum Wage.

“To keep legislation as simple as possible and to ensure clarity for the consumer, the Government has now decided to prevent all of these different forms of tip from counting towards the NMW.

“Around three-quarters of respondents to the Government’s consultation on this subject supported the change. Many business respondents felt that implementation should be delayed until the economy recovered. There was also a fear that changes to payroll systems and employees’ contracts, among other things, could create a significant administrative burden.

“However, the Government stressed that the change was fair for customers who leave a tip, unaware that it will be contributing to the NMW. It will also create a level playing field for the majority of businesses who do not use tips in this way.”

Recently the Court of Appeal ruled that tips paid to staff under a “tronc” system, whereby an employer hands the tip to a “troncmaster” - often the head waiter - who distributes it among workers, do not count towards the National Minimum Wage under the current legislation.