Restaurants, along with businesses like taxi services, hair salons, hotels, pubs, and cafes, may need to raise their prices to adjust to a new tip-sharing law that takes effect this Tuesday (October 1).

Under the new regulations, these establishments will be prohibited from withholding any tips or service charges left by customers, whether those payments are made in cash or by card.

The legislation aims to enhance the income of approximately 2 million waiting staff and other hospitality employees.

The government is set to introduce the law on Tuesday, more than eight years since the initial proposal of a ban.

Kate Nicholls, the CEO of UK Hospitality, has said that businesses have “been gradually getting ready for this” and are moving towards adopting a code of best practice endorsed by unions, reports MyLondon.

Saxon Moseley, head of leisure and hospitality at consultancy RSM, warned that businesses who have been using the service charge to pay staff or offset their wage bill will still need to pay their staff, but won’t be able to use this cash fund.

He said: “And in that scenario, margins will be hit, in some cases fairly drastically.”

Michael Powner, employment partner at Charles Russell Speechlys, highlighted that reaching an agreement is often challenging and has voiced his concerns about the changes under the new Labour Party government.

He advised: “Employers need to ensure that what is agreed is ‘fair’ and that there is rational reasoning in place while avoiding any potentially discriminatory rules.”

Bryan Simpson, who organises hospitality staff for the Unite union, has also spoken out on the matter, reports Birmingham Live.

He highlighted that some are “deliberately misinterpreting the new fair tips legislation to suit business needs rather than the workers”.

He added: “We will be doing everything in our power industrially, politically and legally to ensure that any unfair tipping policy is challenged.”