Three Key Takeaways
If you operate a restaurant or hospitality business in the Chicago area, you are navigating three overlapping wage frameworks at once: Illinois state law, the Cook County Minimum Wage Ordinance, and the City of Chicago’s Minimum Wage Ordinance.
The rules are not the same across all three. Chicago is in the middle of a multi-year phase-out of the tip credit that will require employers to pay tipped workers the full standard minimum wage by 2028, with a new step taking effect every July 1.
If tips plus base wages fall short of the applicable minimum wage in any given workweek, you are required to make up the difference, and failure to do so can result in back-pay liability, penalties, and enforcement action.
Ask two restaurant owners what the Chicago tipped minimum wage is, and you may get two different answers. A server at a full-service restaurant in the Loop is covered by different rules than one working in Skokie or Napierville. And even within Chicago, the rules that applied last July are not the same as the rules taking effect this coming July.
In our work advising restaurant clients at Ahlbeck & Cook, we regularly see wage compliance issues that stem not from bad intentions but from misunderstanding which jurisdiction applies. This article is designed to give restaurant owners, franchisees, and other hospitality employers a clear picture of the Illinois tipped minimum wage landscape and what is coming next.
How the Three-Layer System Works
Tipped employee wage law in Illinois operates in layers, and the governing principle is straightforward: the highest applicable rate always wins.
Federal law sets a national floor of $7.25 per hour, with a federal tip credit that allows cash wages as low as $2.13 per hour. In Illinois, these federal figures are largely irrelevant in practice, as state and local requirements are significantly higher.
Illinois state law, administered by the Illinois Department of Labor (IDOL), sets the statewide minimum wage at $15.00 per hour for non-tipped employees as of January 1, 2025. For tipped employees, Illinois permits a tip credit of up to 40% of the applicable minimum wage. In practical terms, employers may pay tipped employees a cash wage of $9.00 per hour, provided the employee’s tips bring their total hourly compensation up to at least $15.00. If they do not in any given workweek, the employer must make up the difference.
Cook County has its own Minimum Wage Ordinance (MWO), which covers employers in unincorporated Cook County and in municipalities that have not opted out. As of July 1, 2025, the Cook County tipped minimum wage is $9.00 per hour, matching the state rate. One important nuance: more than 100 municipalities within Cook County have exercised the right to opt out of the county ordinance. If your business is located in one of those municipalities, Illinois state law governs.
The City of Chicago operates its own ordinance for employers with four or more employees. Chicago’s rates are the highest in the state, adjust annually on July 1 based on changes to the Consumer Price Index (CPI), and are subject to a phased elimination of the tip credit running through 2028. As of 2026, Chicago’s minimum wage is $16.60 per hour, and there’s a phaseout of the subminimum wage for tipped workers.
Key Takeaway: Which jurisdiction you operate in determines which rules apply. The wrong assumption about your location can mean underpaying employees without realizing it, and that exposure compounds over time.
Current Tipped Minimum Wage Rates in Chicago, Cook County, and Illinois
Here is where each jurisdiction currently stands. Employers should verify current rates with the applicable agency when making payroll decisions, as Chicago’s rates adjust every July 1.
Illinois (statewide): Employers may pay tipped employees a minimum cash wage of $9.00 per hour, using a tip credit of up to 40% (up to $6.00 per hour). The full minimum wage is $15.00 per hour. If tips plus cash wages fall short of $15.00 for any workweek, the employer must cover the difference.
Cook County (excluding Chicago): The tipped minimum cash wage is also $9.00 per hour, matching the state rate, with the same 40% tip credit and $15.00 make-whole threshold. The county adjusts its rate annually on July 1 based on CPI, though as of July 1, 2025 it remained aligned with the state.
City of Chicago (employers with 4 or more employees): The tipped minimum cash wage is $12.62 per hour as of July 1, 2025, reflecting a tip credit of 24% of the Chicago minimum wage. The full Chicago minimum wage is $16.60 per hour, and that is the make-whole threshold for covered employers.
A few important clarifications on how these rates work in practice:
- The make-whole obligation is per workweek. If tips plus cash wages do not reach the applicable minimum wage for every hour worked in a given week, you owe the shortfall. This is not an annual average; it is measured week by week.
- Overtime is based on the full minimum wage. If a tipped employee works more than 40 hours in a workweek, their overtime rate is calculated using the full applicable minimum wage, not the reduced cash wage. Overtime rates apply when employees work over 40 hours per week, and are 1.5 times regular pay.
- The tip credit only applies to tipped work. You may only claim the tip credit for hours an employee spends performing work for which they customarily receive tips. It cannot be applied to hours spent on unrelated duties.
- Cook County’s 90-day training wage. Cook County permits employers to pay the county minimum wage during the first 90 days for new hires. This exception does not apply to temporary, day labor, or seasonal workers.
Key Takeaway: The tipped minimum wage you owe depends on your jurisdiction and how your employees’ hours are structured. The make-whole obligation applies to every workweek without exception.
Chicago’s Tip Credit Phase-Out: What’s Coming
For operators within Chicago city limits, the more pressing planning issue is not just where rates stand today but where they are headed.
In October 2023, the Chicago City Council passed an ordinance that reduces the permissible tip credit by a fixed percentage of the Chicago minimum wage each July 1, until it reaches zero in 2028. At that point, Chicago employers must pay tipped workers the full standard minimum wage regardless of tips received.
Chicago’s phase-out follows a fixed annual schedule. Based on the current Chicago minimum wage of $16.60 per hour, the tipped cash wage floor rises every July 1 through 2028:
- July 1, 2024: Tip credit at 32% — tipped cash wage of $11.02 per hour
- July 1, 2025: Tip credit at 24% — tipped cash wage of $12.62 per hour
- July 1, 2026: Tip credit at 16% — tipped cash wage of approximately $13.94 per hour
- July 1, 2027: Tip credit at 8% — tipped cash wage of approximately $15.27 per hour
- July 1, 2028: Tip credit eliminated — tipped workers receive the full standard minimum wage
Note that Chicago’s standard minimum wage adjusts annually via CPI, so exact tipped cash wage figures for 2026 and beyond will shift as those adjustments are announced each spring.
To put this in concrete terms: a Chicago restaurant with ten tipped employees working 35 hours per week currently owes at least $12.62 per hour in cash wages. Under the 2026 schedule, that floor rises to approximately $13.94 per hour, an increase of roughly $2,400 per employee per year in direct wage cost before any CPI adjustment. With ten employees, that is approximately $24,000 in incremental annual labor cost from a single step in the phase-out, with two more steps still to come.
Some Chicago operators are exploring service charges as an alternative to traditional tipping. Service charges are treated differently from tips for both tax and wage purposes: they are not subject to the tip credit rules, but they are also treated as ordinary wages, which affects payroll tax treatment. Our article on accounting for tips covers this distinction in detail, and working through the full financial picture with your accountant before making that change is worth the time.
Key Takeaway: Chicago’s phase-out follows a fixed, public schedule. Operators who model these increases now, rather than adjusting reactively each July, will have more control over their margins as the tip credit continues to shrink.
Compliance Obligations Beyond the Rate
Paying the correct minimum wage is the starting point, not the complete picture. There are several additional obligations that apply to employers of tipped workers in Illinois.
Tips belong to the employee. Under the Illinois Wage Payment and Collection Act, gratuities are the property of the employees who earned them. Employers, including managers and supervisors, may not retain any portion of employee tips.
Tip pooling is permitted, but with limits. Illinois allows mandatory tip pools, but the arrangement must be reasonable, employees cannot be required to contribute so much that their pay falls below the applicable minimum wage, and when a tip credit is claimed, only employees who customarily and regularly receive tips may participate. Under federal Department of Labor rules, back-of-house employees such as cooks and dishwashers may not be included in a tip pool if the employer is claiming a tip credit.
Credit card tips must be paid promptly. Tips paid by credit card must be remitted to the employee within 13 days of the end of the pay period during which they were earned.
Notice and posting requirements apply. Employers subject to the Cook County MWO and the Chicago ordinance must post notices informing employees of their wage rights. In Chicago, updated postings are typically required every July when the minimum wage adjusts.
Record-keeping is mandatory. Employers must maintain accurate records of all tips reported by employees, the basis for any tip credit claimed, and the structure and distribution of any tip pool. These records are your first line of defense in the event of a wage complaint or a Department of Labor review.
Penalties for non-compliance are real. Under Illinois law, employers found to have violated minimum wage requirements may owe back wages plus 5% of the underpayment per month for each month wages remain unpaid. The City of Chicago and Cook County each have independent enforcement authority through their respective human rights commissions.
Key Takeaway: Compliance goes beyond the hourly rate. Tip ownership rules, tip pool restrictions, pay-out timing, posting requirements, and record-keeping obligations all carry independent penalties when they are not followed.
Get a Handle on Restaurant Accounting with Ahlbeck & Cook
The tipped minimum wage landscape in the Chicago area is more complex than it might appear, and it is actively changing. Three overlapping frameworks apply depending on where your business operates. The make-whole obligation means the applicable minimum wage is a floor for every workweek. And for Chicago operators, the tip credit that your business may currently rely on is being reduced on a schedule that runs through 2028.
Many restaurant owners only discover wage compliance issues after a complaint or audit. A proactive review of your tipped payroll structure today is a straightforward way to avoid costly back-pay liabilities later.
At Ahlbeck & Cook, we work with restaurant owners, franchisees, and hospitality employers across the Chicago area to help them stay ahead of these changes. Whether you need help modeling the labor cost impact of the Chicago phase-out, reviewing your payroll setup for tipped employees, or making sure your record-keeping is audit-ready, we are here to help.
Contact us today to talk through how these rules apply to your business.
