Update Applicable to:

All employers and multi-state businesses that have minimum 1 employee in an occupation that customarily earns tips within Chicago City.

What happened?

The Chicago City Council voted to eliminate tipped wages for covered employees working within Chicago by July 1, 2028. The “One Fair Wage” ordinance will gradually phase out covered employees’ wages in which gratuities have customarily constituted part of the remuneration (with exceptions), over a five-year period, starting July 1, 2024, and ending in July 1, 2028, onwards.

What do employers need to do?

Employers should review the resources provided, as well as the Chicago Ordinance to adjust to the wage schedule for tipping employees.

What are the details?

Employers of covered employees in occupations that customarily earn tips (i.e.: hospitality) may take a credit against the standard minimum wage rate if those workers earn enough in gratuities to bring them up to Chicago’s hourly minimum wage. If employees’ tips combined with their direct pay at the subminimum hourly rate do not add up to the standard minimum wage, employers must make up the difference.

With passage of the ordinance the tip credit will be reduced in stages, so that the tip credit to employers may not exceed:

• 40% of the applicable minimum wage rate until July 1, 2024
• 32% of the applicable minimum wage rate on and after July 1, 2024
• 24% of the applicable minimum wage rate on and after July 1, 2025
• 16% of the applicable minimum wage rate on and after July 1, 2026
• 8% of the applicable minimum wage rate on and after July 1, 2027, until and including June 30, 2028.

As of July 1, 2028, employers of covered employees in Chicago will not be able to take a tip credit of any amount.

The standard minimum wage rate in effect at that time would apply to all employees, including those in occupations that customarily receive tips. However, servers and other employees in customarily tipped occupations, however, would still be entitled to earn and retain their tips.

“Chicago’s new One Fair Wage Ordinance is going to drastically change and reshape Chicago’s hospitality industry.” JDSUPRA.

For more information, please see the links below:

Law firm Articles: Article 1, Article 2, Article 3

News: Article 1

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