All tips will be given directly to hospitality workers without any deductions under new plans to be set out by the government today.

An overhaul of tipping practices will be announced by the Department for Business, Energy and Industrial Strategy making it illegal for employers to withhold tips and service charge payments from workers.

The new rules are expected to help about 2 million people working in the hospitality, leisure and services sectors, where tipping can make up an important of people’s income.

The government said research shows that many businesses that add a discretionary service charge onto customer’s bills keep part or all of these service charges instead of passing them onto staff.

About 80% of tipping now happens by card rather than cash. At present, businesses that receive tips by card have the choice of whether to keep them or pass them on to workers. Cash tips are already protected by law.

The legislation will include a requirement for all employers to pass on tips to workers without any deductions. A statutory code of practice will be developed after further consultation with businesses, workers and other stakeholders will set out how tips should be distributed to ensure fairness and transparency.

In addition, there will be new rights for workers to make a request for information relating to an employer’s tipping record, enabling them to bring forward a credible claim to an employment tribunal.

Under the changes, if an employer breaks the rules, they can be taken to an employment tribunal, where employees can be forced to compensate workers, often in addition to fines.

Minister Paul Scully said: “Unfortunately, some companies choose to withhold cash from hardworking staff who have been tipped by customers as a reward for good service. Our plans will make this illegal and ensure tips will go to those who worked for it. This will provide a boost to workers in pubs, cafes and restaurants across the country, while reassuring customers their money is going to those who deserve it.”

UKHospitality chief executive Kate Nicholls said: “UKHospitality supports the right of employees to receive the deserved tips that they work incredibly hard for. The hospitality sector as it begins to rebuild after 18 months of restrictions and enforced enclosure is already creating new jobs and driving the jobs recovery. Ensuring employees receive the tips they earn will further strengthen the sector’s ability to create jobs and support the wider economic recovery.”

For hospitality businesses, though, customers tipping with a card incurs bank charges for the business, and many also employ external partners to ensure tips are fairly distributed among staff. With restaurants, pubs and other venues struggling to get back on their feet, facing mounting costs and accrued debts, we urge the government to continue to work closely with the sector as it introduces this legislation to ensure this works for businesses and employees.”

Downing Street said tipping legislation will form part of a package of measures that will provide further protections around workers’ rights.

The government recently announced a range of initiatives to support the hospitality sector through its first Hospitality Strategy. This set out ways to help the sector improve its resilience, including by making hospitality a career option of choice, boosting creativity, and developing a greener sector.