A recent agreement between the Labor Department, the Internal Revenue Service, and around a dozen states will assist federal authorities in targeting businesses that improperly classify workers as independent contractors or non-employees in order to avoid paying workers minimum wage and overtime pay. The practice of misclassification of employees often leads to what has been called "wage theft."

The agreement reportedly involves information sharing between federal and state agencies and involves fines for violating businesses. It is part of an ongoing effort by current Labor Secretary Hilda Solis to increase enforcement of federal wage-and-hour laws.

The new agreement makes the cost of misclassifying employees more harsh. Under the old procedure, violating companies might pay a single fine to a state agency for failing to properly pay workers, but under the new agreement, the state is able to share the information with the Labor Department, which can turn around and impose fines and penalties of its own.

Hawaii, Maryland, Massachusetts, Minnesota, Missouri, Montana, Utah, Washington, and Connecticut signed the agreement, and New York and Illinois will reportedly be signing it soon.

The increased enforcement of wage-and-hour laws will especially focus on industries where wage theft has become a problem, including the hotel, restaurant, janitorial, health care and day care industries. Earlier this year, the Labor Department gained back over $219,000 in back wages from 44 restaurants in the Boston area that had misclassified workers as independent contractors.

One factor making the problem worse is that businesses taking advantage of their workers are becoming increasingly difficult to compete against. Hopefully the new agreement will increase communication between the states and the Labor Department, as well as IRS officials.

Source: Wall Street Journal, "Labor Dept. expands enforcement of wage violations," Sep 19, 2011.