Restaurant owners will be banned from taking customer tips and service charge payments from workers under legislation being introduced by the government five years after a ban was first proposed.

The law, which is designed to help about 2 million waiting staff and other hospitality workers, follows a series of high-profile stories about companies deducting money from card payments intended for waiting and kitchen staff.

The government said research had shown many businesses that add a discretionary service charge to customer’s bills were keeping part or all of that cash, instead of passing it to staff.

Some businesses have used the cash to top up managers’ or chefs’ wages and others have used it to support profits.

A change in the rules has become urgent after the pandemic spurred a switch to cashless payment with 80% of all UK tipping now happening by card, making it easier for businesses to keep funds. Cash tips are already protected by law.

Paul Scully, the labour markets minister, 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.”

Under the law, it will be illegal for employers to divert tips and service charges from restaurant workers. Those breaking the rules can be fined and forced to compensate workers. However, any legal action will be reliant on workers bringing an employment tribunal case.

A statutory code of practice to be developed after further consultation with businesses, workers and other stakeholders will set out how tips should be distributed to ensure fairness and transparency. Workers will also have a new right to make a request for information relating to an employer’s tipping record, enabling them to bring an employment tribunal claim.

The Unite union, which has led a long-running campaign for legislation on tips, said the five-year delay had cost waiting staff an estimated GBP10,000 each in lost tips.

Sharon Graham, Unite’s general secretary, said: “It’s shocking that this group of mainly young workers has had to wait five years for government action to tackle the tips scandal.”

The union warned that the new code must not leave workers open to abuse through unfair distribution systems.

Kate Nicholls, the chief executive of industry body UKHospitality, urged the government to work closely with businesses and employees to make the system work for all as she said venues faced mounting costs.

“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,” she said.

The government pledged to take action to protect workers’ tips and service charges in 2016 after a string of revelations about businesses taking a slice of the payments. It committed to legislation in 2018 after a lengthy consultation. The law is now set to be put before parliament as part of a wider employment bill, although there is still no firm timetable.

Concern about tipping practices began in 2015 when the Observer revealed that Pizza Express was taking 8p of every GBP1 paid when tips were given by card. It later emerged that chains including Giraffe were also taking a cut of tips. Although Pizza Express, Giraffe and many other chains dropped the policy after a public outcry, unsavoury tipping practices have continued to emerge.

Most recently, the Guardian revealed that Pizza Express waiting staff were losing a slice of tips in order to bump up pay for kitchen workers. Waiting staff at the burger chain Byron, meanwhile, fear their tips are about to be diverted to increase pay for kitchen workers and restaurant managers.