Clock has started on five-year plan that'll raise wages for Chicago's tipped workers

Starting Monday, restaurants in Chicago must start paying their tipped workers more per a new city ordinance that has sharply divided the restaurant industry and supporters of the law.

The tipped minimum wage is increasing from $9.48 per hour to $11.02. Chicago’s overall minimum wage is also rising on July 1 from $15.80 per hour to $16.20 for employers with four or more workers.

In October, the Chicago City Council passed an ordinance to increase the tipped minimum wage by 8% each year for five years until it reaches parity with the city’s standard minimum wage.

Advocates and supporters have been demanding better wages and conditions for workers. But restaurant associations say that federal law already ensures a base minimum wage and laws like Chicago’s ordinance will reduce earnings for tipped workers.

As restaurants in Chicago and across the U.S. continue to face headwinds after the COVID-19 pandemic, the impact of the city’s ordinance will be closely watched.

For years, seven states paid restaurant workers the base minimum wage plus tips, including California, Oregon, Washington, Nevada, Minnesota, Montana and Alaska. This year, legislation to raise the tipped minimum wage was proposed in 17 states, including Illinois, but none passed, according to the National Restaurant Association.

The advocacy group One Fair Wage spearheaded the campaign in Chicago and called the "subminimum wage" a “direct legacy of slavery.” One Fair Wage was also heavily involved in other pushes to raise the tipped minimum wage in Arizona, Massachusetts, Michigan and other states.

The group led a similar law in Washington, D.C., that went into effect May 2023. The impact there is a hint to the potential impact of Chicago’s ordinance.

“We hope [Chicago] won’t follow what happened in D.C.,” said Sean Kennedy, the National Restaurant Association’s executive vice president for public affairs.

In May 2023, Washington's tipped minimum wage increased from $5.35 per hour to $10 by July 1, 2023.

After the act went into effect, the number of employees at full-service restaurants dropped by 1,900 in about a year — from 30,500 in May 2023 to 28,600 in April 2024, according to data from the Bureau of Labor Statistics. While April’s figure is similar to the number of employees reported before the pandemic, the industry had been bouncing back — hitting a four-year peak of 30,800 in June 2023.

It's unclear why the restaurant jobs were shed, but the National Restaurant Association attributes the decline to the new policy. Restaurateurs — and customers — can also go to nearby Virginia or Maryland where the regulation doesn’t apply, said Kennedy.

Reducing the inequities of tipping

In April and May, the number of jobs in full-service restaurants in the Chicago metro area declined slightly, according to the BLS. Yet employment at limited-service restaurants rose.

“This may indicate full-service restaurants affected by Monday's wage hike are already making changes and bracing for future wage increases,” according to the Employment Policies Institute, a research group based in Washington, D.C.

But a spokesperson for Mayor Brandon Johnson's office said in an emailed statement that “eliminating the subminimum wage is good for business. In states and jurisdictions where the subminimum wage has been eliminated, full-service restaurants saw stronger growth both in terms of the number of establishments and number of jobs compared to states with the subminimum wage.”

Supporters say the ordinance will improve workers’ lives.

According to a One Fair Wage report, a lower tipped minimum wage forces employees who are predominantly female and minorities “to rely on customer tips for the majority of their income, making them more vulnerable than other workers to the race and gender inequities of tipping.”

Cheryl Taylor, a bartender at The Quarry in South Shore, has been in the restaurant business for 15 years and is bullish about her livelihood.

“Hospitality has helped me take care of my family. It saved my life,” she said.

But bartending wages are unpredictable for the mother of six who lives in Woodlawn, so she welcomes the ordinance. “Servers are at the mercy of customers. You can’t presume they will tip 20%,” she said.

Taylor doesn’t believe patrons will tip less after July 1 because most are unaware of the higher tipped minimum wage.

The mayor's office said, “The Johnson administration has worked collaboratively with the restaurant industry, small business owners, and service workers to ensure that all parties had a seat at the table to come to a solution that would ensure that all workers are paid at least the minimum wage without hurting our small business community.”

The city’s Department of Business Affairs and Consumer Protection held two webinars in June for employers and workers and it's issued public notices about the ordinance ahead of Monday.

Higher costs for restaurants

The Illinois Restaurant Association and some Chicago restaurant owners, as well as servers, say the new regulation hurts them and eateries are not fully recovered from the COVID-19 pandemic.

They contend that restaurants will have to raise menu prices as their labor costs increase, especially amid ongoing struggles with inflation. Subsequently, customers will tip less if food prices go up and if servers’ base pay is raised, they said. Restaurant owners could also downsize waitstaff or shift to counter service to cut costs.

“Restaurants will not be able to sustain another hit like this,” said Niles Mayor George Alpogianis, who owns eight restaurants, including Reunion at Navy Pier and Kappy’s in Morton Grove.

Servers at some of his restaurants make $45 to $50 per hour with tips on busy shifts, and he likened them to commissioned employees incentivized by tips. If their tipped earnings drop, servers will leave restaurant jobs, Alpogianis said.

An independent survey of 315 Chicago restaurants commissioned by the Illinois Restaurant Association found that workers earn an average hourly wage of $28.48 an hour.

Nationally, tipped servers make a median of $27 per hour, according to the National Restaurant Association. The highest-paid tipped workers make more than $41 per hour, said the industry group.

Sometimes servers can be the highest-paid employee in a restaurant and earn more than the manager, said Kennedy, of the National Restaurant Association.

Federal law guarantees tipped workers minimum wage

Under federal law, restaurant owners must pay tipped workers the local hourly minimum wage if their tips plus base salary don't reach that minimum threshold. In other words, if servers earn less than the overall hourly minimum wage, restaurateurs must pay them the difference.

The federal Fair Labor Standards Act created this “tip credit” system and penalizes employers who violate the law. But not all restaurants comply, which might be more often the case with smaller, less-established eateries that fly under the radar.

Rather than requiring Chicago restaurants to hike the tipped minimum wage, Sam Toia, president of the Illinois Restaurant Association, urged hefty fines and crackdowns on employers who don’t pay the legally guaranteed minimum wage.

Chicago should “add more inspectors and go after bad actors,” he said.

Toia said restaurants operating on thinner margins post-pandemic will suffer financially if their labor costs are hiked each year.

“We will see more restaurants closing their doors. It is really going to impact the small ma-and-pa restaurants,” said Toia. If Chicago’s ordinance is not amended, “we’re going to see increases in menu prices and layoffs.”

One restaurant owner in Little Village said her longtime servers are “terrified” that the new law will hurt their earnings. She asked not to be named because of instances of cyberbullying from activists who support the ordinance.

The restaurateur said the ordinance will “unfortunately change the landscape of the restaurant industry forever. More locations will go to counter service. Prices will have to be raised, so less customers will come. We’re already at such slim margins.”

“Most people miss just how tough it is to run a restaurant,” said Kennedy. “On Main Street, they have the lowest profit margin of all businesses. The way they can eke out a living is the tip credit model.”

Still, One Fair Wage and supporters pushed for an Illinois law similar to the Chicago ordinance, but the bill didn't move forward last month in the Legislature.

Alpogianis said he and others in the restaurant industry opposed the Illinois bill. He also expressed caution over the city’s ordinance.

“I hope the city of Chicago takes a better look at this,” said Alpogianis. “Let’s slow it down and see what happens. Then let's talk about it.”