Chicago Compliance Reminder: Chicago Tipped Wage Phase-Out

Panko Compliance · June 16, 2026

## What it is Chicago passed the One Fair Wage Ordinance in October 2023, phasing out the tipped sub-minimum wage entirely by July 1, 2028. The tipped cash wage rises 8% per year for 5 years until it matches the full city minimum wage. Tips become a true gratuity on top of the full wage, rather than being credited against an employer's wage obligation. ## What compliance looks like Phase-out schedule (city tipped minimum): • July 2024: 60% of full minimum • July 2025: 68% of full minimum • July 2026: 76% of full minimum ← (current as of this page) • July 2027: 84% of full minimum • July 1, 2028: 100% of full minimum — sub-minimum eliminated In 2026, with Chicago's full minimum at $16.20, the tipped minimum is approximately $12.32/hr (cash) + tips. Each July, recalculate payroll, update tip-credit notices, and adjust your labor models. What doesn't change: tip pool rules, tip ownership (tips still belong to the employee), and the requirement that combined cash + tips meet the full minimum each pay period. What you should do now: 1. Build a 2028 labor model. Cash wage will be ~32% higher than today. Plan menu pricing, service-charge policy, and PoS configuration. 2. Reconsider service charges. Some Chicago restaurants are moving to mandatory service charges (which are NOT tips) plus a tip line — front-of-house vs back-of-house revenue sharing becomes easier. 3. Update your tip credit notice every year. Out-of-date notices = lost tip credit retroactively. ## Penalties for non-compliance Failure to pay the current phase rate: back wages owed + 2× liquidated damages + 5% per month interest. Failure to update tip credit notice: tip credit invalid for the entire pay period; owe full minimum wage as cash. Retaliation against a tipped worker who asserts the new rate: $1,000 per occurrence + reinstatement + back pay. The plaintiff's bar has been filing class actions specifically targeting the phase-out — operators who didn't update payroll on July 1, 2024 saw demand letters within 60 days. --- Full guide with sources: https://alerts.getpanko.app/compliance/chicago/tip-credit-and-phaseout

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