Chicago Tipped Wage Phase-Out
Chicago is phasing out the sub-minimum tipped wage. By July 1, 2028, all tipped workers earn full minimum wage as cash. Phase schedule + planning.
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.
Who it applies to
All Chicago employers who pay tipped employees. This includes restaurants, bars, hotels, banquet halls, and food trucks. The Illinois state sub-minimum is unchanged (still $8.40/hr in 2026); Chicago employers must meet the higher city floor.
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 Out-of-date notices = lost tip credit retroactively.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.
How Panko helps
Every July, Panko pushes a Chicago tipped-wage update to Pro members the morning the new phase rate kicks in. We also track the IL DOL bulletin board, where the wage announcement is officially posted. Our Chicago Pro Tips also flag PoS-related issues (Square, Toast, etc. have had bugs in tip credit calculations during phase transitions) within days of restaurants reporting them on Reddit / Chowhound forums.
Sources
Pro members get a push the moment this rule changes — new rate, new guidance, new court ruling. Plus city-specific Pro Tips that flag the compliance windows that matter for your operation.
Panko Alerts publishes this as compliance reference, not legal advice. Laws change. Penalties listed are statutory maximums — actual enforcement varies. Consult an employment lawyer or your state DOL before acting on edge cases.