The government has announced plans today to amend regulations so that tips cannot count towards payment of the National Minimum Wage (NMW).

The news, which comes on the 10th anniversary of the NMW legislation, will mean that employers will no longer be able to use gratuities and service charges processed through the payroll to top up staff wages to meet the NMW.

Business secretary John Hutton said: "Hundreds of people in the UK have jobs in sectors where tipping is commonplace. When people leave a tip, in a restaurant or elsewhere, they expect it to go to service staff and as customers, we've got to know if that actually happens.

"Under the current law, all workers are already entitled to receive the minimum wage. The changes we're proposing will mean that in the future, tips cannot count towards payment of the minimum wage.

"We also want to encourage employers to make it clear how tips are distributed so that customers know where their money is going and whether or not the establishment operates a fair tipping policy."

The move was welcomed by the GMB union's general secretary Paul Kenny. "GMB members working in the hotel and catering industry have fought a 10-year campaign to end centrally-collected tips being counted by their employers toward the NMW and they will welcome this move," he said.

However, the British Hospitality Association said that because of the tax and National Insurance implications, staff on the minimum wage could worse off and that the change would also have a significant impact on business costs.

The organisation's chief executive, Bob Cotton, said: “I have yet to see proposals on this subject that have been thoroughly thought through. At present, they have a potentially highly unfavourable impact on pay for staff. The only person to gain will be the tax man.”

The NMW is due to rise £5.73 an hour on 1 October, and the new changes are anticipated to take place next year.