Minimum Wage and Tipped Employees

 Posted on January 19, 2026 in Wage Law

For employers, wage compliance is not just about paying employees on time. It is about following detailed rules that can lead to penalties if handled incorrectly. Tipped employees often create added risk because tips can only be used toward wages in limited ways.

As of 2026, the Illinois Department of Labor has confirmed that the state minimum wage is 15 dollars per hour, while allowing a lower cash wage for tipped employees. For employers, misunderstanding this rule is a common source of wage claims and audits. A Schaumburg, IL employment lawyer can help ensure your pay practices meet current legal standards.

How Does Minimum Wage Apply to Tipped Employees in Illinois?

Illinois employers are responsible for making sure every employee earns at least the minimum wage. Tips do not replace wages. They can only be used to make up part of the required pay.

What Minimum Wage Laws Must Employers Follow in Illinois?

Minimum wage rules in Illinois are governed by the Illinois Minimum Wage Law, found at 820 ILCS 105. These rules apply to most employers and cover both tipped and non-tipped employees.

For employers, the key rule is straightforward. Each employee must earn at least the minimum wage for every hour worked during each pay period. Employers cannot average wages across weeks or rely on future tips to correct a shortfall.

What Is a Tip Credit and What Are Employer Responsibilities?

A tip credit allows an employer to pay a lower hourly cash wage, but only if the employee’s tips raise their total earnings to the required minimum wage. If tips fall short, the employer must pay the difference.

Using a tip credit is optional. Employers who choose to use it must follow strict requirements:

• Making sure the employee regularly receives tips

• Clearly informing the employee that a tip credit is being used

• Accurately tracking tips and hours worked

• Paying additional wages if tips do not reach the minimum wage

If any of these steps are missed, the employer may be responsible for unpaid wages, even if the employee earned substantial tips.

Who Qualifies as a Tipped Employee Under Illinois Law?

A tipped employee is someone who regularly receives tips as part of their job. Common examples include servers and bartenders.

Employees who only receive occasional tips usually do not qualify as tipped employees. For example, a retail cashier who sometimes receives a tip from a customer is not considered a tipped employee under Illinois law. Employers must correctly classify positions and apply tip credit rules only to eligible roles. Misclassification like this is a common compliance problem that can result in serious consequences for the employer.

What Are the Rules on Tip Pooling and Tip Ownership in Illinois?

Illinois law places limits on how tips can be shared. Employers generally cannot keep employee tips or use them for business costs.

Tip pooling may be allowed, but only among employees who customarily receive tips. Managers and supervisors are usually excluded from tip pools. Improper tip pooling is a frequent source of employer liability.

What Risks Do Employers Face for Tipped Wage Violations?

Violations involving tipped employees can lead to back wages, penalties, interest, and legal fees. In some cases, claims may involve multiple employees or cover several years of payroll practices.

Common problem areas include unpaid tip shortfalls, improper tip pooling, and poor recordkeeping. These issues often surface during audits or employee complaints.

When Should an Employer Speak With an Employment Lawyer?

Employers benefit most from legal guidance before an audit, complaint, or investigation begins. A lawyer can help assess potential exposure and identify patterns that raise red flags. They can also help address issues quietly before they turn into formal claims.

Getting advice early can also help businesses adjust policies, train supervisors, and document compliance efforts in a way that reduces the risk of future wage disputes.

Schedule a Free Consultation With Our Schaumburg, IL Employment Law Attorney

If your business employs tipped workers, The Miller Law Firm, P.C. can help reduce risk. Attorney Richard J. Miller is able to draw upon his extensive years as a leading finance executive to proficiently handle complicated legal matters affecting businesses and individual employers. His background allows him to evaluate wage and hour compliance with both legal precision and real-world business insight.

Call 847-995-1205 to speak with a Schaumburg, IL employment lawyer about minimum wage rules and tipped employee compliance.