(The Center Square) – Industry groups are speaking out against a proposal to eliminate Illinois’ tip credit.
The legislation, like House Bill 5345, would nearly double the current required hourly wage for tipped employees, eliminating the sub-minimum wage for those workers.
Rebekah Paxton, research director for the Employment Policies Institute, submitted testimony to the House Labor and Commerce Committee when the measure was presented. She said in places where the tipped credit was eliminated, it has been brutal for restaurants.
“Their labor costs go up by 66%, so they’re either forced to decrease employment, whether that’s through fewer shifts for their employees or downsizing their staff entirely,” said Paxton. “If they can’t make the numbers work, they may have to raise menu prices.”
EPI data on the statewide consequences of tip credit elimination in Illinois projects it would eliminate an estimated 7,730 jobs and lead to $20.7 million of lost earnings for tipped employees.
Paxton points to Washington D.C., where the tip credit was abolished, with restaurant employment dropping 4.4% and the rate of restaurant closures is the highest since the pandemic.
The tip credit elimination law will take effect in July in Chicago, which was opposed by the Illinois Restaurant Association. The tip credit will be reduced in stages, and as of July 1, 2028, employers of covered employees in Chicago will not be able to take a tip credit of any amount.
“What we’re already seeing in Chicago, even ahead of the increase, is they’re putting service charges on customer checks which go towards subsidizing their higher wages,” said Paxton.
A group called Protect Illinois Restaurants says a recent survey of tipped restaurant employees found that a strong majority agree that the current tipping system should not be changed. If tipped wages are eliminated, most tipped employees (86%) believe that they will earn less.
“Evidence shows that for decades ending the tip credit cuts earnings, kills jobs, and shutters restaurants,” said Paxton. “Other markets across the country, including the nation’s capital, offer cautionary tales about the devastating effects of tip credit elimination.”
