Chicago votes to kill the tip credit

Wages paid directly to servers, bartenders and other tipped restaurant employees will rise by 67% over the next five years.
Chicago Mayor Brandon Johnson promised during his campaign to kill the credit. | Photo: Shutterstock

Chicago’s City Council voted 36-10 Friday to phase out the city’s tip credit, a move that will require restaurants there to increase the wages they pay tipped workers by 67% by July 2, 2028.

Passage was widely expected after the Illinois Restaurant Association agreed to drop its resistance to the measure in exchange for getting a five-year phase-in. The ordinance had originally called for having restaurants meet the new wage obligations in two years.

In addition to raising full-service restaurants’ labor costs, the phase-out of the tip credit is also expected to widen the pay gap between front- and back-of-house workers, since servers and bartenders will now get at least the same base wage as kitchen employees, plus gratuities.

Currently, a portion of tipped workers’ gratuities can be counted toward the minimum wage they’re due under city law. Employers are required to pay those employees only $9.48 an hour if the workers average at least $6.32 per hour in tips, bringing them up to the citywide minimum wage of $15.80. The difference between the employer’s obligation and the mandated minimum wage is known as the tip credit.

Employers’ direct payment will jump to $10.75 next July, $12.01 a year later, $13.59 as of July 2026, $14.54 the following July and the full minimum wage of $15.80 in July 2028.

Those figures assume the city’s minimum wage will remain at $15.80 an hour. That pay floor was set as of July 1, 2023.

Opponents of phasing out the tip credit warn that the climb in labor costs will be a devastating burden for Chicago restaurants.

“Some businesses are going to close, there’s no doubt about that,” Chicago Alderman Anthony Napolitano remarked in urging his fellow Council members to kill the measure.

Other observers agreed.

“It will prove economically challenging to some in a business with notoriously tight profit margins and escalating business expenses,” Brian Roth, co-managing partner of the Chicago office of the law firm Gordon Rees Scully Mansukhani.

He called it a “watershed moment” that upends the restaurant industry’s current labor model.

Supporters of the measure attested one after another before the vote was taken that ending the tip credit will help Chicago restaurant workers cover such basic expenses as rent and electricity bills. Many also contended that making female servers dependent on tips exposes the women to sexual harassment and mistreatment since they can’t fend off the treatment without risking income.

Several attested that the benefits of killing the credit will be particularly beneficial to women of color, since they make up a large portion of the city’s server population.

Opponents cautioned that phasing out the tip credit may not have the beneficial effect on tipped workers’ income that proponents expect. They cited what happened in Washington, D.C., which began the phase-out of its tip credit in May.

“Restaurant operators, tipped servers and local dining scenes will suffer any time the tip credit is eliminated,” Sean Kennedy, EVP of public affairs for the National Restaurant Association, remarked in a prepared statement. “We are already seeing this play out in Washington, D.C., and Chicago restaurant owners and diners should prepare for similar challenges.”

The group broke with its state association by remaining opposed to the Chicago measure.

The main proponent of the Chicago legislation was One Fair Wage, an advocacy group supported by the Service Employees International Union, or SEIU. The group was a major supporter of Chicago Mayor Brandon Johnson in his election bid. Johnson made a dissolution of the credit a top priority of his administration.

Officials of the union have already indicated that they intend to press Gov. Jay Pritzker to support eliminating the tip credit on the state level. Pritzker has indicated that he'll hear their arguments. 

Although the Illinois Restaurant Association dropped its opposition to the Chicago ordinance, the group’s website indicates that it remains opposed to the adoption of a statewide elimination.

Bills to kill the credit have already been aired in the legislatures of Maryland’s Montgomery and Prince George’s counties. Proposals are expected to be introduced in Arizona and other states as well.

The NRA has indicated that it will oppose any proposals that surface. “The National Restaurant Association remains committed to preserving the tip credit system in every community,” said Kennedy.

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