Chicago freezes tipped wage phaseout for restaurants, delays increases to 2028

Chicago restaurant workers got a reprieve, but not the wage increase many had been bracing for. On May 20, the City Council approved a compromise that freezes tipped workers’ pay at 76% of the city minimum wage for two years at large restaurants and for four more years at smaller establishments with 21 or fewer employees, delaying the next increase until 2028 for bigger operators and 2030 for smaller ones.

The practical effect is immediate. Chicago’s tipped wage for employers with four or more workers stands at $12.62 an hour as of July 1, 2025, while the city minimum wage for those employers is $16.60. Under the deal, the scheduled move higher in July will not happen, which gives operators a break in payroll planning and menu pricing, but also postpones a base-pay gain for servers, bartenders, and other tipped staff who had expected the phaseout to keep moving.

For restaurants, the vote landed in the middle of an already bruising operating environment. The Illinois Restaurant Association’s 2025 survey of 305 full-service Chicago restaurants found that 84% raised menu prices after the July 1, 2024 increase from $9.48 to $11.02, 69% cut employee hours, 62% reduced staffing levels, and 51% postponed hiring. The association also said 11% of surveyed restaurants permanently closed in response to the wage increase, and it reported that 496 Chicago restaurants closed in the first half of 2025. That is why the fight over tipped wages has been framed not just as a pay issue, but as a test of whether more labor cost can be absorbed without shrinking dining rooms and service jobs.

The policy fight has been moving for more than a year. Chicago approved the One Fair Wage ordinance in October 2023, launching a five-year phaseout of the tipped wage credit that began July 1, 2024. Before that phaseout, the tipped wage credit had been 40% of the full minimum wage. A March 2026 council vote to freeze the phaseout drew a veto threat from Mayor Brandon Johnson, and a later override attempt failed in April by a 30-19 vote, four votes short, before the council settled on the compromise this month.

The result leaves both sides with time and uncertainty. Restaurant owners now have a clearer runway to budget labor, payroll, and hiring without another immediate jump in tipped wages. Tipped workers still have the city’s top-up rule in place, which requires wages plus tips to reach the full minimum wage, but the debate over how fast that should happen has simply been pushed back, not settled.