Illinois recently joined the growing list of states increasing their minimum wage. On February 19, Governor Pritzker signed the Lifting Up Illinois Working Families Act (the Act), which amends the Illinois Minimum Wage Law (IMWL) to gradually increase the state’s minimum wage from its current rate of $8.25 per hour to $15 per hour by January 1, 2025. (See Table 1.)

The rate hike alone will have a big impact on restaurants and other businesses in the state. But employers should also be mindful of the Act’s other changes, including sharp increases in damages and penalties for noncompliance with minimum wage and overtime laws and authorization of random audits by the Illinois Department of Labor (IDOL).

Keep in mind that minimum wages in certain jurisdictions, including Chicago and Cook County, may be higher than statewide minimums. (See below.)

Get Ready to Increase Wages

Illinois employers should be prepared to increase the pay of minimum-wage workers, beginning January 1, 2020, when the rate increases from $8.25 to $9.25 per hour. Another rate hike, to $10, is scheduled for July 1, 2020, followed by $1 bumps each January 1 until the rate reaches $15 on January 1, 2025. Employees who are under the age of 18 and have not worked more than 650 hours for the employer in any calendar year are subject to a lower minimum wage that tops out at $13 in 2025. (See Table 2.) (Note: Employers have the option of paying a slightly lower rate to new employees during their first 90 days of employment.)

To ease the pain of the increase for smaller businesses, the Act provides a tax credit for businesses with 50 or fewer full-time-equivalent (FTE) employees. The credit essentially allows employers to recover 25% of the cost of the minimum wage increase in 2020. Thereafter, the percentage decreases gradually until the credit is phased out at the end of 2026 (2027 for employers with five or fewer FTE employees).

Tip Credits Unchanged

The Act does not affect the IMWL’s treatment of tipped employees. As before, “tip credits” will allow employers to reduce wages for servers, bartenders and other qualified workers by up to 40%, provided tips cover the difference between the reduced wage and the minimum wage. Keep in mind, however, that as the minimum wage increases, so will the amount that must be covered by tips. Under current law, for example, a server paid the minimum rate of $4.95 per hour must earn $3.30 per hour in tips ($8.25-$4.95) to meet the minimum wage. In 2025, that gap will increase to $6 in tips per hour ($15-$9), increasing the risk that an employer will have to supplement the pay of employees whose tips fall short.

Stiffer Damages and Penalties

The Act substantially increases the costs of noncompliance with the IMWL. Notably, these changes are effective now and apply not only to minimum wage violations but also to overtime violations. Previously, aggrieved employees could recover damages equal to the amount of the underpayment plus 2% of that amount for each month it remains unpaid. Now, employees may recover three times the amount of the underpayment plus 5% per month. In addition, if violations are shown to be willful, repeated or reckless, an employer is liable to the IDOL for up to 20% of the total underpayment plus a $1,500 penalty. The Act also gives teeth to the IMWL’s record-keeping provisions by allowing the IDOL to recover a penalty of $100 per “impacted employee” for failure to maintain required records.

Be Aware of Local Laws

This article focuses on Illinois state law, but keep in mind that certain local jurisdictions impose their own minimum wages. For example, the Chicago minimum wage is currently $12 per hour, increasing to $13 on July 1, 2019. The minimum base wage for tipped employees in Chicago is $6.25 (to be adjusted July 1, 2019). Future increases will be tied to inflation.

In Cook County, the current minimum wage is $11, increasing to $12 on July 1, 2019. The minimum base wage for tipped employees in Cook County is $5.10 (to be adjusted July 1, 2019).

Review Your Employment Practices

All businesses should begin planning for rising minimum wages. In addition, in light of tougher penalties and the prospect of random audits, it’s critical to review your pay practices for compliance with Illinois, federal, and local law. You might also consider strategies for mitigating your risks, such as asking employees to sign arbitration agreements with class-action waivers.

For more information, contact Tom Pierce at [email protected] or 312.670.7444. Visit ORBA.com to learn more about our Restaurant Group.

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