Illinois Tip Laws

Under the Fair Labor Standards Act (FLSA), tips are regulated. Employers who meet certain criteria are permitted to take a partial credit against minimum wage obligations for tipped employees. Tipped employees includes those engaged in jobs in which they regularly and customarily receive tips.

The tip credit was created by Congress in 1966, and adjustments occurred on December 28, 2021, when the 2021 Dual Jobs Final Rule went into effect. A federal court vacated portions of the final rule in October 2024, which effectively reinstated the original dual jobs regulation (29 C.F.R.531.56(e). It recognizes that an employee may work in tipped and non-tipped occupations, and employers are only permitted to take the tip credit against minimum wage obligations for hours worked in the tipped occupation.

The FLSA mandates that a tipped worker must be paid at least $2.13 per hour. The FLSA tip credit can be equal to the different between the direct (or cash) wage paid to the employee and the federal minimum wage. Only tips actually received by an employee count when making the determination of a tipped employee and applying the credit.

The FLSA also permits employees to “pool” or share tips with other eligible employees, although it doesn’t impose a limit on the amount or percentage of the contribution of each employee in a valid tip pool.

State law may differ from the federal FLSA standards. Review what tip laws apply in Illinois.

When Were the Tip Laws Last Updated in Illinois?

Tip laws in Illinois were updated in July 2024.

Does Illinois Have Tip Laws That Differ from Federal Tip Laws?

Yes, Illinois has laws in place that differ from the regulations under the FLSA. Since the state minimum wage is higher, the law mandates that an employer can only take a tip credit of 40% of the minimum wage. As is the same as the federal requirement, the employer must pay the difference if the sum of the wage and tips do not equal the hourly minimum wage.

Who Holds the Ownership of Tips in Illinois?

Under state law, any gratuities paid to employees are their property. Employers are not permitted to keep tips.

What are the Rules for Distribution of Credit Card Processing Tips in Illinois?

A tip given to an employee via credit card must be paid out within 13 days of it being authorized by the customer.

What are the Tip Pooling Rules in Illinois?

Employers in Illinois are allowed to establish mandatory tip pools. Eligible employees share a portion of their tips, which are distributed among the group. The law restricts against requiring employees to pay more than is “reasonable and customary” into the pool, as well as paying so much that their hourly wage is lower than the minimum wage.

Who Can and Can’t Participate in Tip Pools in Illinois?

Tipped employees (front-of-house and waitstaff) are allowed to participate in tip pools. Supervisors, owners, and managers are not permitted to participate, nor are cleaners, kitchen staff, and other back-of-house staff members.

Is there a Difference Between Tips and Service Charges in Illinois?

Yes, a mandatory service charge is not considered a tip. Therefore, it would belong to the employer.

To be considered a tip instead of a service charge, a customer must give money voluntarily in an amount of their own choosing. The customer must also be able to determine who receives it, and it can’t be set by employer policy.

Can Employers Deduct Credit Card Fees from Tips in Illinois?

The law does not restrict employers from deducting any credit card processing fees from employee tips.

Do Tips Count Toward the Minimum Wage in Illinois?

Yes, the tip credit can count toward minimum wage.

Do Tips Factor Into Regular Rate Calculations for Overtime Pay in Illinois?

Any eligible employee working over 40 hours in a week should receive overtime pay (1.5 times their normal hourly wage). However, a tipped employee’s overtime wage is based on the state amount, not the hourly rate that includes a tip credit.

Are There Cities and Municipalities in Illinois That Have Their Own Tip and Service Charge Rules That Differ from Statewide Laws?

Chicago has its own service charge and tip rules that differ from statewide laws. In October 2023, an ordinance was passed that gradually eliminates the tip credit over five years. By 2028, Chicago employers will no longer be permitted to use the tip credit when determining the hourly wage of tipped employees.

What Are the Record-Keeping Requirements for Employers Regarding Tips in Illinois?

Employers must keep detailed records of all tips reported by employees, including amounts and dates of service. If tip pooling is in effect, the record should also include the arrangements and the distribution of tips to eligible staff members.

What Options Do Employees Have for Remuneration if Their Tips are Withheld in Illinois?

An employee may take legal action against an employer who violates Illinois tip laws.

What are the Penalties for Employers for Not Complying with Illinois Tip Laws?

Violating Illinois tip laws can subject an employer to a penalty of up to $1,162 per violation. Civil penalties and legal fees may also apply.

Managing the regulations associated with tips in Illinois can be a challenge. But with WorkforceHub, your business can ensure accuracy. The numerical clock prompt feature allows the employee to input their received tips at the end of the shift, and that information would be available for reporting and payroll processing.

Illinois Minimum Wage Law