Battle Brews Over Proposed Elimination of Tip Credit System in Illinois

Some lawmakers, tipped workers and restaurant owners are rallying against the efforts to eliminate the tip credit system in Illinois. Currently, restaurant owners are required to pay below minimum wage if their tips add up to the minimum wage. However, a recently introduced measure in Springfield would no longer allow restaurant workers less than minimum wage. A coalition is now urging the General Assembly to reject the proposal arguing that it would hurt businesses and customers.

What is the tip credit system?

Under the tip credit system, employers are allowed to pay workers below minimum wage if they show the federal government that an employee has made enough money in tips and doesn’t need to be paid the full minimum wage. In the case of Illinois, restaurant owners are required to pay only $8.40 if the tips add up to the minimum wage of $14. Furthermore, employers must boost the pay for those employees whose tips don’t add up to the minimum wage rate.

What’s the new law?

The bill HB5345 says an employer will not be entitled to an allowance for gratuities and will need to pay each employee no less than the applicable minimum wage rate, including any minimum wage rate that is higher as required by local ordinance in home rule municipalities. The legislation recently passed in Chicago raised the minimum wage for tipped workers from $9 to $15.80 per hour while allowing the workers to still get tips, per NBC Chicago.

The Illinois proposal was announced in partnership with the organization One Fair Wage. It also aims to not take away tips from workers and raise their basic hourly pay. The organization had previously stated that it tracked 6,000 restaurants that voluntarily paid a liveable wage to employees as it is the only feasible way to recruit in one of the worst staffing crises in the industry’s history, NBC Chicago reported.

As per One Fair Wage, the proposal aims to phase out the subminimum wage over two years if the bill is passed. The penalty for employers who violate the rule would be a fine of up to $1,5000 per day for each violation. If the bill is passed, the subsequent law would go into effect on January 1, 2025. It is currently working through the Illinois House Labor Committee.

Pushback against the law is gaining momentum

While some lawmakers and advocates of the bill say the move will offer a fair wage for many restaurant workers who have long gone underpaid, several others have acknowledged the change could put increased pressure on restaurants and customers alike. When the bill was proposed, the Illinois Restaurant Association said it "wholeheartedly" disagreed with the idea, as per the NBC report.

"If this legislation becomes law, here's what we can expect: layoffs for servers, bartenders, bussers and runners, fewer hours for servers, and higher costs at the table for the consumer," Sam Toia, president and CEO of the Illinois Restaurant Association told CBS News.

Opposers of the bill have cautioned that consumers who are already under pressure due to rising costs may end up paying even more, as restaurants may hike menu prices to compensate for the added costs. Furthermore, restaurant owners have argued that the new rule could lead to fewer tips for workers as most customers would refrain from putting out more money.