Illinois boasts well over 25,000 restaurants, which account for around 10% of employment across the state. Treating restaurant employees fairly is critical to boosting a restaurant’s reputation and attracting the right team members. One aspect of this is tipping.

The legalities of tipping in Illinois and how it impacts tipped employees differ from many other states. Understanding the law helps restaurant owners remain compliant and legal while maintaining good relationships with staff members.

Federal Minimum Wage & Tip Credits

A tip credit allows an employer to use an employee’s collected tips to make up part of their wage. They have to pay a base wage, often called a minimum cash wage. Where minimum wage (currently $7.25 per hour) is in force, the base cash pay per hour works out to $2.13. If the employee receives enough tips during their shift, the employer can decide that $5.12 an hour of the worker’s wage comes from those tips. 

However, in Illinois, the minimum wage is higher than the national federal minimum. Illinois employees enjoy a rate of $14.00 an hour. Illinois state law dictates that restaurant managers can take a tip credit, but only for 40% of the minimum wage. So, currently, the base Illinois wage is $8.40 and restaurant owners can use a tip credit of $5.60 an hour to make an employee’s reach the minimum wage.

If an employee doesn’t receive enough tips to cover $5.60 an hour, the restaurateur must pay the difference. It’s the restaurant’s responsibility to ensure each team member is paid at least the state’s minimum wage. Also, accurate records of all tips must be kept, and employees must be made aware that their wages will be partially paid via tips.

Tip Pooling & Sharing Regulations

Tip pooling is a common practice in Illinois restaurants. Employees give a portion of their tips, which are then fairly distributed among other tipped employees. This can ensure hosts, bartenders, and other front-of-the-house workers get a reasonable cut of the tips.

Illinois restaurant owners should ensure they follow tip pooling laws:

• Employees can’t hand in tip amounts that take them under the minimum wage.
• Managers, supervisors, and owners can never take from a tip pool.
• Only tipped employees should receive money from the tip pool, e.g., wait staff and front-of-house not kitchen staff and cleaners.

Employers can mandate tip pooling, requiring employees to take part in the scheme. The employer must ensure the employees know they will be required to do this.

Tip sharing in Illinois is another way employees split tips to try to ensure fairness. Tip sharing is less formal and not always managed by the restaurant leadership team. However, it’s good practice to keep a record of shared tips to prevent conflict and discrepancies. 

Tipping software allows Illinois restaurant owners to keep accurate records of both tip pooling and tip sharing schemes. It’s also easier to make digital payouts, which are often more convenient for employees.

Mandatory Service Charges

What is a service charge, and what is a tip? There’s a common misconception that they’re the same. However, a tip is a gratuity given voluntarily by a diner. A service charge is a mandatory charge added by the restaurant for services above and beyond the usual standard.

Mandatory service charges may be added for handling large parties, special events, or ordering off-the-menu items for catering jobs. It’s best practice to note on a check that this service charge is going to the restaurant, not the server. Servers and other employees have no rights to these service charges because they are not tips. Making receipts clear and accurate helps everyone stay informed and improves the chances of your employees receiving tips.

Credit Card Processing Fees

Plenty of payment providers charge for their services. These payment processing fees are paid by the restaurant and should be accounted for in the budget. In Illinois, there isn’t any specific law prohibiting restaurant owners from reducing a server’s tip to cover the credit card processing fee. However, the law does state that employees are entitled to all tips received. Collected tips should be paid out to employees within a 13-day period. Deducting tips for card processing costs is legally murky and won’t present your restaurant in a positive light.

Protecting Tipped Workers’ Rights

There are so many ways to protect tipped workers’ rights while running a profitable business. Stay up-to-date with law changes and increasing minimum wages, and understand how much you can claim as a tip credit. Ensure tip pools are fair and distributed in a timely manner, and never deduct an employee’s tips for breakages or other restaurant costs.

Illinois laws regarding tip credits may change in the near future, so it’s more vital than ever to understand how this could impact your business and your team. You can find out more about tipping in Illinois at the U.S. Department of Labor (DOL) site. Handling tips is easier with the right tipping software, so book a demo of TipHaus today and discover how to make tipping better for your whole workforce.