The Chicago City Council has voted to phase out the tip credit that employers are currently allowed to use when paying tipped employees. Historically, Chicago allowed employers to pay tipped employees at a rate below the city's minimum wage, provided the tips received bring the worker’s earnings to at least the full minimum wage.
The Details:
Under the rules now in effect, Chicago employers may pay tipped employees a cash minimum wage of 60 percent of the city minimum wage. Currently, the Chicago minimum wage for employers with 21 or more employees is $15.80 per hour and the minimum cash wage is $9.48 per hour. ($15.80 X .60 = $9.48). Consequently, an employer is now allowed a tip credit of 40 percent or $6.32 per hour. Under Chicago Ordinance No. O2023-0002995 The percentage of tipped credit that employers may utilize to pay tipped employees (assuming tips received bring the employee to at least the hourly minimum wage) will be decreased as follows:
Date Tipped Credit Percentage of Full Minimum Wage Minimum Cash Wage Percentage of Full Minimum Wage
July 1, 2024 32 68
July 1, 2025 24 76
July 1, 2026 16 84
July 1, 2027 8 92
Effective July 1, 2028, the tip credit will be eliminated, and employers will have to pay tipped employees at least the applicable minimum wage rate in effect. The Chicago minimum wage is adjusted annually on July 1st of each year.
Next Steps:
Chicago employers paying tipped employees must pay at least the cash minimum wage as outlined in the matrix above.
Have Questions?
Please contact your dedicated service professional with any questions.