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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.”
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