Many people in Chicago who work in the service industry rely on tips to make ends meet. Tips are especially important for these workers since the minimum wage for a tipped employee is $6.60 per hour in 2021 compared to the $11 per hour minimum wage non-tipped employees are entitled to. It is important for tipped employees to understand what their rights are regarding tips, whether their employer can keep a portion of their tips and whether tip-pooling is illegal.
What is the definition of a “tipped employee?”
Not every employee who gets the occasional tip is a “tipped employee” for legal purposes. Under federal law, an employee who customarily and regularly receives over $30 monthly in tips is a tipped employee. If an employee is a tipped employee, their employer cannot use the tips received for anything except as a credit towards the minimum wage obligation. This is known as a “tip credit.”
What is a “tip credit?”
Federal law and Illinois law states that employers are allowed to take a “tip credit” towards their duty to pay the minimum wage for tipped employees. However, Illinois taps what an employer can take as a tip credit at 40% of the state minimum wage.
Is “tip pooling” legal?
Tips earned by the employee are the property of the employee. However, “tip pooling” is legal. Tip pooling is an arrangement amongst workers who regularly and customarily receive tips to collect their tips together and share them out amongst all tipped employees. Workers who do not customarily and regularly receive tips cannot be part of a tip pool.
Ensure your rights are protected
Tipped employees need to understand their rights regarding their tips. If an employer wrongfully keeps an employee’s tips it could constitute a wage and hour violation. If this happens, employees will want to learn more about their rights and options, including the possibility of pursuing a lawsuit.