New rules which make it illegal for the operators of bars, restaurants and hotels to make up staff wages using service charges or money received as tips have come into force.

Previously it was legal to calculate tips as part of the National Minimum Wage (NMW), but the new legislation means that staff now have to be paid their wages in full, attracting National Insurance liability on the whole amount . Peter Mandelson, Business Secretary, 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. It's an issue of fairness. Tips are meant as a bonus, not a means to boost pay to the basic minimum."

Unite, the Federation of Small Businesses and the GMB have welcomed the change. However, the British Hospitality Association (BHA) believes that the changes will involve an additional £130m in National Insurance costs, more than twice the government's estimated £60m. BHA's Bob Cotton, responding to government claims that in real terms the new legislation could also mean one person per restaurant losing their job, said: "One person's job may not sound a lot. But potentially that's quite a lot of jobs in these difficult circumstances."

The rules come into effect on the same day that the adult rate for the NMW rises by 7p per hour to £5.80 for workers aged 22 and over, with the rate for workers aged 18-21 now being £4.83 - up 6p - and that for workers aged 16-17 rising 4p to £3.57.