The minimum wage in the U.S. first emerged in 1938 when Franklin D. Roosevelt signed the Fair Labor Standards Act into law. While minimum wage is an important cornerstone of fair labor laws, loopholes still exist for employees who receive tips. By applying tip credit, employers can pay employees only a percentage of the minimum wage if they regularly receive tips that make up the difference.
However, beginning July 1, 2024, Chicago will gradually eliminate tip credit and require all Chicago employers to pay the standard minimum wage regardless of how much their employees make with tips.
Overview:
- What is Tip Credit in Illinois?
- Chicago Tip Credit to Be Eliminated by 2028
- Positive Impact for Employees
- Push Back From Restaurant Owners
- Enforcing New Tip Credit Laws
What is Tip Credit in Illinois?
Currently, Illinois law allows employers to take a tip credit, which means they can pay their employees the minimum cash wage if their tips make up the difference between the minimum wage. The minimum cash wage is only a percentage of the minimum direct wage. In Chicago, the minimum cash wage is currently $11.02 and the minimum direct wage is $16.20.
Restaurant employees are often the first to come to mind when considering workers who rely on tips. But they are not the only ones affected by tip credit. Other tipped workers include:
- delivery drivers
- hairstylists
- nail technicians
- dog groomers
- entertainers
- movers
- valet drivers
- nanny or babysitter
- hospitality staff
Many people who receive the minimum cash wage do not receive enough tips to compensate for their lower minimum wage, and many employers take advantage of tip credit by paying their employees far less than they deserve.
Chicago Tip Credit to Be Eliminated by 2028
On October 6, 2023, the “One Fair Wage” Ordinance was approved by the Chicago City Council. The Ordinance provides for the gradual elimination of tip credit, making subminimum pay for tipped workers illegal by 2028.
Starting July 1, 2024, the minimum cash wage for tipped employees will gradually increase until it is the same amount as the minimum direct wage. The schedule is as follows:
| Date | Minimum Tip Credit Allowance |
|---|---|
| July 1, 2024 | 32% of applicable minimum wage |
| July 1, 2025 |
24% of applicable minimum wage |
| July 1, 2026 |
16% of applicable minimum wage |
| July 1, 2027 |
8% of applicable minimum wage |
| July 1, 2028 |
0% of applicable minimum wage |
The ordinance covers anyone who works within Chicago’s city limits, regardless of their employer’s location.
“This incredible victory is not only going to improve the lives of hundreds of thousands of Chicagoans and help small businesses by bringing workers back into the restaurant industry; it’s also going to kick off a series of wins for low-wage service workers in cities and states across the country that will raise wages for millions nationwide.” ~ Saru Jayaraman, President of One Fair Wage, a non-profit that aims to end subminimum wage for tipped workers nationwide.
Positive Impact for Tipped Workers
Proponents of the Ordinance say that eliminating tip credit can help create a better economic future for tipped workers. The Ordinance can also:
- increase opportunities for youth employment.
- address the restaurant industry’s staffing crisis and high turnovers.
- reduce the occurrence of wage theft which is common in the service industry.
- address systemic inequities in the hospitality and restaurant industries.
Seven states, including California, Washington, and Alaska, have already eliminated tip credit and a minimum cash wage. Reports show that tipped workers in these states are significantly less likely to live in poverty than tipped workers in states that still have a tip credit.
Push Back From Restaurant Owners
On the other hand, those who oppose the Ordinance, like the Illinois Restaurant Association, fear that many restaurants have yet to recover from the COVID-19 pandemic. Without a tip credit, labor costs will increase, which may lead to restaurant owners reducing staff, increasing menu prices, and reducing employee hours.
To offset labor costs, some restaurants are adding automatic service charges to the customer’s bill. In the worst-case scenario, restaurants may be forced to close entirely.
Opponents also highlight that some restaurant workers in Chicago can average as much as $28/hr after tips and that customers may not tip as much as costs rise. However, some suggest, that even if the customer adjusts their tipping behaviors with any necessary price changes, the result will still mean better and fairer wages for employees who receive tips.
Enforcing New Tip Credit Laws
Tipped employees in Chicago should have seen an increase in their wages as of July 1, 2024. And should continue to see an increase on the same date each year until 2028. Employers may choose to pay employees the minimum cash wage ahead of the deadline to ensure compliance.
If you are a tipped employee in Chicago and do not see an increase in your wages by the effective date, you have the right to file a complaint with the Office of Labor Standards. This office is tasked with investigating complaints and enforcing the Ordinance to ensure that employees receive the wages they are entitled to.
In some cases, you may also consider hiring an employment lawyer who specializes in labor law to assist with your case. A lawyer can provide legal advice, help you navigate the complaint process, and represent you in any potential legal proceedings to ensure that your rights are fully protected.
At Disparti Law Group Accident & Injury Lawyers, we aim to fight for the rights of all Chicago workers. For a FREE consultation, call (312) 600-6000 and find out why thousands say… Larry wins!
