Illinois Tip-Pooling and Tip-Credit Rules: What Employers Must Know

Illinois Tip-Pooling and Tip-Credit Rules: Key Takeaways

Illinois law states that tips belong entirely to employees and must be paid within 13 days after the pay period ends.
Tip pooling is allowed but must be voluntary and include only employees who customarily receive tips.
The Illinois tip credit is capped at 40% of the minimum wage starting in 2025; Chicago will phase out tip credits entirely by 2028.

Understanding Illinois tip-pooling and tip-credit rules is essential for hospitality employers to ensure fair pay and regulatory compliance.

This guide clarifies state and local tip management laws and how to apply them in Illinois workplaces.

For hiring guidance, see how to post jobs for tipped employees.

1. Tip Ownership and Distribution in Illinois

Illinois law clearly defines that tips are the property of the employees who earn them.

Employers are prohibited from retaining any portion of these gratuities. They must distribute tips in full to the appropriate employees.

The law requires that gratuities be paid no later than 13 days after the end of the pay period in which the tips were earned.

This timely payment rule ensures employees receive their rightful earnings promptly and helps employers avoid legal issues.

For legal clarity around ownership of tips, read can restaurant owners take tips.

2. Tip Pooling Arrangements Under Illinois Law

Tip pooling allows employees to combine their gratuities for redistribution among staff members.

Illinois permits tip pooling but with strict conditions to protect employees' rights:

Participation must be voluntary; employees cannot be forced to contribute tips to a pool.
Only employees who customarily and regularly receive tips—such as servers and bartenders—should participate.
Employees who do not generally receive tips, such as cooks and dishwashers, are excluded.

These guidelines ensure tip pools are fair and do not dilute tips away from those earning them directly.

Clarify duties and eligibility with the server job description.

Who Can Participate in Illinois Tip Pools?

Eligible participants typically include:

Waitstaff who directly interact with customers
Bartenders routinely tipped for their service
Other employees who regularly receive tips as part of their role

Employers must be careful to exclude non-tipped positions from mandatory tip-pooling arrangements.

Review role expectations in the bartender job description.

3. Tip Credit Provisions in Illinois

Illinois allows employers to apply a tip credit to reduce the required direct cash wage paid to tipped employees.

This means employers can pay a lower base wage if tips bring the total compensation to at least the state minimum wage.

Crucially, starting January 1, 2025, Illinois caps the tip credit at 40% of the minimum wage.

For example, if the minimum wage is $15.00/hour, the maximum tip credit allowed is $6.00—requiring employers to pay at least $9.00 in cash wages.

Employers must carefully calculate and adjust wages accordingly to remain compliant.

Check current pay rules in minimum wage for restaurant servers.

4. Chicago Local Ordinance: Phase-Out of Tip Credit

Chicago has enacted a stricter rule, gradually eliminating tip credits.

Starting July 1, 2024, the allowable tip credit reduces by 8% annually.

By July 1, 2028, employers in Chicago must pay tipped employees the full local minimum wage without applying any tip credit.

This phase-out means Chicago tipped workers will receive a higher guaranteed base wage compared to the wider Illinois regulation.

Employers operating in Chicago should prepare for these changes now to adjust payroll systems and budgeting.

5. Compliance Recommendations for Illinois Employers

To ensure compliance with Illinois tip-pooling and tip-credit rules, employers should:

Distribute all tips in full to employees within the 13-day timeframe after each pay period.
Implement tip pools only on a voluntary basis and limit participation to eligible tipped staff.
Calculate the tip credit carefully, respecting the 40% cap effective in 2025.
Monitor local ordinances, particularly in Chicago, to adhere to tighter rules and upcoming tip credit phase-outs.
Maintain clear communication and documentation regarding tip policies and employee notices.

When advertising open roles, follow job posting compliance to avoid penalties.

For support staff policies, see the busser job description.

6. Best Practices and Recordkeeping for Tip Pooling in Illinois

Clear policies and consistent recordkeeping minimize risk and improve transparency.

Best practices include:

Documenting tip distribution processes and amounts.
Providing written notice to employees about tip pooling and tip credit rules.
Maintaining payroll records that reflect accurate tip credits and cash wages paid.
Training management and payroll staff on state and local tip regulations.
Conducting periodic audits of tip pools and wage compliance.

Streamline distributions with the best apps for tip pooling.

7. Useful Government Resources for Illinois Tip-Pooling and Tip-Credit

For official guidance, employers and employees can consult the following trusted resources:

Illinois Tip-Pooling and Tip-Credit Rules: Compliance Guide Conclusion

Illinois hospitality employers must carefully navigate both state and local rules on tip pooling and tip credits.

Ensuring tips are the property of tipped employees, administering voluntary and equitable tip pools, and respecting the tip credit limits are critical components of compliance.

With Chicago phasing out tip credits entirely by 2028, employers should proactively adjust policies and payroll to ensure fair pay and avoid legal risks.

By following these guidelines and utilizing official resources, Illinois businesses can maintain transparent and compliant tipping practices that support both employees and operational success.

Also evaluate the cocktail server job description when designing tip-pool eligibility.

01. What is the tip credit cap in Illinois starting in 2025?

Starting January 1, 2025, Illinois caps the tip credit at 40% of the minimum wage.

02. Who can participate in tip pooling under Illinois law?

Only employees who customarily and regularly receive tips, such as servers and bartenders, can participate in voluntary tip pools. Non-tipped employees are excluded.

03. How soon must tips be paid to employees in Illinois?

Tips must be paid within 13 days after the end of the pay period when they were earned.

04. What is the phase-out schedule for tip credits in Chicago?

Chicago reduces the allowable tip credit by 8% annually starting July 1, 2024, and eliminates it entirely by July 1, 2028.

05. Are tip pools mandatory under Illinois law?

No. Tip pooling is voluntary under Illinois law. Employees cannot be forced to contribute their tips to a pool.