Chicago Tipped Minimum Wage Phasing Out

The Chicago tipped minimum wage will be eliminated starting in 2028.

City council members in October 2023 passed the ordinance, with the first update to the tipped wage starting July 1, 2024.

The gap between Chicago’s standard minimum wage and the tipped rate will gradually close over the next few years. It is estimated the ordinance will impact about 100,000 employees in Chicago.

Minimum Wage Management. Simplified.

Chicago Tipped Minimum Wage

Beginning with background on minimum wage in Chicago, the city’s rate for large employers has been under indexing since 2022.

Chicago updates its rate on July 1 each year. Currently, the rates in the city are:

• $15.80
• $9.48 – tipped employees

The $9.48 figure reflects the current $6.32 tip credit — allowing employers to take a credit of 40 percent of the standard minimum wage. Under the new law regarding Chicago tipped minimum wage, that percentage will shrink over the next few years until it matches the standard rate.

It breaks down as follows:

• 32 percent on July 1, 2024
• 24 percent on July 1, 2025
• 16 percent on July 1, 2026
• 8 percent on July 1, 2027

Starting July 1, 2028, employers will have to pay tipped employees the standard rate.

Meanwhile, employers found in violation of the law can face fines between $500 and $1,000 for each offense. Each day a violation continues will constitute a distinct offense with a separate fine.

Lastly, employers should note that there are other minimum wage rates to monitor in Illinois.

State rates:

• $13
• $7.80 – tipped employees

Cook County rates:

• $13.70
• $8 – tipped employees

Minimum Wage Compliance Resources

Minimum Wage Compliance

Many jurisdictions, especially in places like California, do not have a separate minimum wage rate for tipped employees. Chicago will join them.

Elsewhere, lawmakers in Maryland’s Montgomery County have considered eliminating the tipped minimum wage. And as wage and hour issues continue to be of concern to lawmakers, there could be more movement regarding gratuities in the coming years.

Managing minimum wage rates has never been more challenging for employers.

Look to the activation of an emergency minimum wage rate in Portland, Maine, as a recent example, along with California’s $20 minimum wage for fast food employees. (For another tough minimum wage spot, check out how employers in Hawaii must deal with the state’s complex tipped rate law.)

At the same time, without action at the federal level, cities and counties continue to pass their own rates. Plus, more jurisdictions are under indexing requirements, and a new Fight for $20 minimum wage push has developed.

Wrapping up, there are currently 130 jurisdictions with a minimum wage rate higher than the federal minimum wage:

• 31 states (including Washington D.C.)
• 45 counties
• 54 cities

Employers that operate in jurisdictions across the U.S. must constantly monitor legislative happenings where they have locations — and that includes other types of laws such as paid leave, pay transparency and, of course, the associated labor law posters.

Conclusion

Windy City employers with tipped employees should ensure they are prepared for the new rates in the years to come.

As a reminder, the first change to Chicago’s tipped minimum wage begins in 2024, with the tip credit being eliminated in 2028.

This Employment Law News blog is intended for market awareness only, it is not to be used for legal advice or counsel.