The information will help Labor officials target businesses that improperly label workers as independent contractors or as non-employees to deprive workers of minimum wage and overtime pay. Misclassifying workers also lets companies avoid paying workers compensation, unemployment insurance and federal taxes.
Patricia Smith, the Labor Department's top lawyer, said sharing information between state and federal agencies could subject businesses to multiple fines.
"There's more of an incentive to be in compliance because the cost of what we consider to be illegal activity has increased," Smith said in an interview.
In the past, Smith said, a company might pay a single fine to a state agency for not making proper unemployment insurance payments. Under the new agreements, a state can share the information with the Labor Department, which can seek fines and penalties for federal wage violations too.
The violation would also be reported to the IRS, which can go after the company for unpaid taxes, Smith said.
States that have agreed to work with the Labor Department so far include Connecticut, Hawaii, Maryland, Massachusetts, Minnesota, Missouri, Montana, Utah and Washington. New York plans to sign up in the near future.
Labor Secretary Hilda Solis has made increased enforcement of federal wage-and-hour laws a top priority since she took office in 2009. The department has focused on industries where so-called "wage theft" is considered a problem, including the hotel, restaurant, janitorial, health care and day care industries.
Last month, the agency began targeting large U.S. homebuilders to see if they failed to pay workers the minimum wage or overtime.
"The urgency of addressing this issue has become more pronounced because we're seeing these illegal business practices used by more and more industries, like restaurants," said Nancy Leppink, head of the department's Wage and Hour Division.
Earlier this year, for example, the department recovered over $219,000 in back wages for 44 Boston-area restaurant workers who were misclassified as independent contractors by two restaurants. The restaurants had failed to pay them overtime and also weren't paying their payroll taxes.
Leppink said employers who do follow the law are finding it difficult to compete against those businesses that are misclassifying their workers.
In 2010, the Labor Department collected nearly $4 million in back wages on behalf of about 6,500 employees who had been misclassified, a 400 percent increase over the amount collected in 2008. The department has hired about 300 additional investigators to probe wage theft complaints.
Leppink said getting more referrals from states or the IRS would help the agency increase enforcement efforts.