Chicago's City Council Voted To Eliminate The Tip Credit

Sushi bar KazuNori in NYC proudly states on its menu that customers shouldn't tip: "We are a NO TIPPING establishment. Hospitality is included in our menu prices." To anyone who's ever worked a service industry job before, factoring a livable wage for workers into the expected revenue might seem like a radical idea. Not anymore.

On Friday, Chicago's City Council voted 36 to 10 to eliminate the tip credit, reports Restaurant Business. As it previously stood in Chicago (and many other major cities), employers could legally count their servers' expected average tips toward their minimum wage base pay. Considering Chicago's minimum wage was set at $15.80 as of July 1, restaurants could pay their workers just $9.48 per hour "before tips." Now, per this ruling, dubbed "One Fair Wage," tipped restaurant employees must receive the base wage of $15.80, and whatever tips they see on top of that have been well earned.

With the tip credit dead, tipped employees in Chicago will see wages increase by 67% by July 2, 2028. It's long-overdue good news for servers, but for households that might be struggling right now, the five-year phase-in might seem like a backhand. This lengthy implementation period is the result of a compromise between the Chicago City Council and the Illinois Restaurant Association, which heavily countered the ordinance for its rise in labor costs. (The original bill called for a two-year phase-in.) This ordinance could potentially change the lives of the estimated 12.3 million food service workers in America.

It's no secret that tipping has had a controversial history, and this first-of-its-kind ordinance comes with uncertain consequences. Nick Sposato, the 38th Ward Alderman, grimly predicted, "I think this is going to be a job and business killer," via ABC 7 Chicago. Some theorize that menu prices will increase and employee layoffs will offset the higher labor costs. Front-of-house and back-of-house employees could see even greater wage disparities in establishments that don't pool tips.

Still, if a business model depends on exploiting the labor of its employees, then many proponents of the ordinance question whether that business should remain open anyway. As Michelin-starred Chef Rick Bayless told CNBC, "We're not making their salary dependent on your generosity as a customer, we're trying to move the restaurant world into a more respectable profession." A slow night might be the difference between getting groceries or filling up their car for workers who have to rely on tips to make a livable wage. Servers regularly face all kinds of tipping inequalities due to customer prejudices based on race, gender, age, and "prettiness." The ordinance is a huge stride in the fight for more stable, predictable pay and improvement of industry culture.

Tipped employees within and beyond Chicago can reasonably look forward with anticipation for this ruling to prompt further legislation changes, ballot initiatives, and nationwide labor policy reform. In November 2024, the One Fair Wage ordinance is expected to appear on the ballot of at least four states.