Customer tips in bars and restaurants will no longer be counted towards the pay of staff to bring them up to the minimum wage, the Government has announced.
Ministers said changes will be made to stop the controversial practice of employers using tips and service charges to top up workers' wages to make sure they earned the statutory adult rate of £5.52 an hour.
Business Secretary John Hutton said: "Hundreds of thousands 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 consumers, we've got a right to know if that actually happens.
"This is an issue of fairness and common sense and it's one many people clearly care a lot about. 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."
A consultation on the Government's recommendations will be launched in the autumn and the regulations are expected to be changed next year.
Derek Simpson, joint leader of the Unite union, which has been campaigning to end tips being included in wages, welcomed the announcement.
"Waiters and waitresses across the country have been hungry for the tips loophole to be closed and the announcement today will satisfy their appetites. It is great news that unscrupulous employers will no longer be able to use the tips left for staff to subsidise low wages. Workers in restaurants, hotels and bars across the country have waited a long time for their just deserts."
Unite said its campaign will continue in order to bring transparency to the tipping system in bars, restaurants and hotels.
The union plans to display its Fair Tips logo in bars and restaurants across the country as a symbol that they pay their staff at least the minimum wage with 100% of tips on top.
The Government move was announced on the 10th anniversary of legislation which paved the way for the introduction of the national minimum wage, which came into effect in 1999.
The rate for over-21s will increase to £5.73 an hour in October, with the rate for 18 to 21-year-olds rising from £4.40 to £4.77 and the figure for 16 and 17-year-olds will go up from £3.40 to £3.53.