Illinois Tip pooling and Tip credit Laws | TipMetric 2020

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In Illinois, service industry employees who earn tips should know about how their tips are handled, what their rites are and what the state law instructs.

While we can assume that virtually all wait staff understand what a tip is, what may not be known are the laws and rules that dictate how tips should be handled and treated by establishments employing wait staff. Employees can visit the website for the Illinois Department of Labor for more information.

Tip Credits

The federal minimum wage is currently $7.25 and is currently $8.25 in Illinois, but employers may pay new employees a minimum wage of $7.75 per hour during the first 90 days of employment. After that, the minimum wage becomes $8.25 per hour. Tipped employees in the state are entitled to earn at least this amount per hour. Illinois state law does allow for employers to claim a 40% of the minimum wage tip credit. This means that an employer may pay tipped staff a minimum of $4.95 (or $4.65 during the first 90 days) per hour. If the employee does not make at least the minimum wage when combining their tips and the employer’s hourly wage, then the employer must make up the difference.

Tip Pooling

Illinois does allow employers to require tip sharing and tip pooling and that pool is shared among staff that assist in serving customers as part of their regular job duties. Employees receiving a restaurant tip are only required to contribute what is reasonable and may also ensure that whatever they do keep meets the minimum wage requirements. There are certain guidelines Illinois employers must follow if allowing tip pooling.

Employees who share in the tip pooling must be part of “chain of service” where their actions may result in a tip from a customer. This could include wait staff, bartenders, hosts and buss staff. Not included in this group are dishwashers, cooks and cashiers.

Tip pooling software is available to ensure mistakes and disputes are eliminated, making it easier for establishments to save time processing payroll with accuracy.

Multiple Job Responsibilities

In some environments, some employees may have multiple tasks as part of their overall job responsibilities. According to a 2018 federal law change, if a tipped employee performs related non-tipped activities at the same time or around the same time of engaging in tipped duties, the employer may take a tip credit, even though some of the employee’s time is spent on non-tipped activities.

Mandatory Service Charges

A mandatory service charge is sometimes added to a customer’s bill if warranted, for things such as larger tables, private parties or similar circumstances. This is viewed as part of the contract between the customer and the restaurant and not an indication of good service by the wait staff. In Illinois, this additional charge is not a tip and it should be noted that the establishment should inform the customer of this. If any portion of that service charge is shared with the service staff, then customers should be made aware of that as well.

The Internal Revenue Service, in 2014, created an incentive for establishments to no longer charge mandatory service charges if any portion of it is shared with the staff. If part of the service charge is shared with staff, then it must be categorized as wages instead of tips, and, as a result, must have Social Security and Medicare withheld on these amounts. Any amount given by the customer above the normal cost of food and taxes must be voluntary if it is to be properly categorized as a tip to the service staff.

Credit Card Charges

If an employer pays a processing fee to accept credit cards from customers, and that customer leaves a tip as part of the credit card payment, the employer is allowed to deduct the employees share of the credit card processing charge (for example, 3% of the bill charged to the card) the employee realizes in Illinois. This is the case because Illinois law does not prohibit employers from doing this.

Persons employed within the hospitality industry in Illinois should have an understanding of the state’s rules and rites as well as an understanding of how their income may be impacted.