Refresher on Illinois Tip Credit

Where employees are paid a direct hourly wage of at least minimum wage, and tips are collected, the general rule under both Illinois and federal law is that the tips belong to the employee. However, if the employee customarily and regularly receives more than $30 per month in tips, the employer can elect to pay the employee as a “tipped employee” and claim a tip credit. This approach essentially allows the employer to “take” the employee’s tips, by counting the tips as if they had paid them directly to the employee in certain circumstances.

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The employer may pay a tipped employee an hourly wage as low as $7.80 (or $7.50 for the first 90 days of employment) and add the tips to reach the full state minimum wage of $13.00 (or $12.50 for the first 90 days of employment). If this lower minimum wage plus the tips the employee actually earns does not amount to at least the full state minimum wage of $13.00, the employer must make up the difference to reach minimum wage.

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There are exceptions to this rule concerning (i) credit card fees from tips that are paid on a credit card; (ii) mandatory service charges; (iii) whether employees are also performing non-tipped work; and (iv) delivery drivers. If any of these variables are present, an employer should absolutely speak with an attorney to ensure correct execution. Wage suits are ugly and expensive, and can be avoided by ironing this out in advance.

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