Chicago’s ongoing debate over the future of the tip credit took another turn this week, as the City Council failed to override Mayor Brandon Johnson’s veto of a measure that would have paused the phase-out of the subminimum wage for tipped workers.
The vote marks the latest chapter in a contentious, months-long battle over how quickly Chicago should move away from the tip credit—a system that allows restaurants to pay tipped employees a lower base wage as long as tips bring them up to the standard minimum wage.
The stakes trace back to 2023, when Chicago became the largest city in the country at the time to independently overturn the tipped wage structure. Alderpersons passed an ordinance—dubbed “One Fair Wage”—to gradually eliminate the tip credit over five years, with the goal of bringing tipped workers up to the full minimum wage by 2028.
A bloc of 30 alderpersons voted to override the mayor’s veto, but the effort fell short of the supermajority needed, leaving Johnson’s veto intact and the current phase-out plan moving forward.
Still, the outcome underscores how unsettled the issue remains.
“Today’s outcome in Chicago makes clear that there is more work ahead—and that the tip wage is far from settled,” said Mike Whatley, vice president of state affairs and grassroots advocacy for the National Restaurant Association, in a statement following the vote. “We thank the City Council for listening to tipped workers and restaurant owners and for keeping the dialogue on the importance of the tip wage going.”
Momentum for a slowdown—or broader compromise—has not disappeared. Even as the override failed, the Council introduced a separate amendment that would pause increases to the tipped wage for two years. That proposal was sent to committee. And members of the council have promised there will be a round two in their efforts to freeze Johnson’s “One Fair Wage” ordinance.
The push and pull in Chicago mirrors a broader national trend, where cities are rethinking the tip credit but increasingly running into economic realities once changes begin to take effect.
Chicago initially approved a plan to gradually eliminate the subminimum wage, aligning with efforts in markets like Washington, D.C. But as implementation has progressed, operators have raised concerns about rising labor costs, while some workers have reported mixed impacts on earnings.
The phase-out is already having a measurable impact on operators, according to a recent Illinois Restaurant Association survey of 204 full-service restaurants in Chicago. Nearly all respondents—98 percent—said they made operational changes after the city’s tipped minimum wage increased from $11.02 to $12.62 per hour on July 1, 2025.
Among the most common adjustments: 89 percent raised menu prices, 79 percent cut employee hours, and 72 percent reduced staffing levels. More than half (54 percent) said they postponed hiring plans. Others reported adding service charges (47 percent), delaying expansion (46 percent), reducing hours of operation (45 percent), and investing in labor-saving technology (44 percent).
At the same time, many operators say they are navigating a difficult business environment. Sixty-one percent of respondents reported lower-than-normal customer traffic over the past year, while just 6 percent said traffic was higher than usual. Nearly one-third (29 percent) said their restaurant was not profitable in the last 12 months, and 80 percent reported lower-than-normal profitability. Additionally, 46 percent said they took on additional debt.
Those dynamics have already led to course corrections elsewhere. In Washington, D.C., for example, lawmakers recently adjusted their own voter-approved phase-out plan. Rather than eliminating the tip credit entirely by 2027, the city opted to slow the transition and preserve a permanent 25 percent tip credit, citing pressure on restaurant operators and unintended consequences for workers.
Chicago now appears to be at a similar inflection point.
Supporters of maintaining or slowing the phase-out argue that the current trajectory risks accelerating restaurant closures, reducing hours for employees, and pushing more operators toward service fees.
The mayor’s office disputes the idea that the policy is driving restaurants out of the city. According to city officials, more than 1,500 new retail food establishment licenses have been issued since July 1, 2024, and more than 80 percent of restaurant licenses were renewed in both 2024 and 2025.
Johnson has also framed the policy as a matter of economic and racial equity. His office notes that more than half of tipped workers are women and roughly 60 percent are Black or Latino, arguing that higher base wages can provide more consistent and reliable income for those groups.
For restaurant operators, the uncertainty is becoming a defining feature of the landscape. Policy shifts, reversals, and ongoing negotiations make long-term planning increasingly difficult, particularly in a high-cost urban market.
