Massachusetts investigators are reporting a sharp increase in fines and other penalties collected from businesses caught violating the state’s labor laws.
A new report by the state’s Joint Task Force on the Underground Economy detailed $21.4 million in tax and minimum wage violations during the an 18-month period that ended last December. That’s more than the task force collected during the prior 40 months combined.
Officials attributed the increase to widespread efforts by employers to circumvent labor laws in the shaky economy, as well as more effective enforcement by investigators. A range of violations included failure to pay minimum wage and overtime, misclassification of employees as independent contractors, and the skirting of regulations to avoid paying required taxes and insurance.
Most of the recovered funds came from companies that failed to pay unemployment insurance taxes.
“There are indeed too many employers engaging in this behavior,” said Joanne Goldstein, the state’s secretary of Labor and Workforce Development. “The businesses that don’t play by the rules impact all of us, whether it’s taxpayers, legitimate businesses in the Commonwealth, or working individuals. We’re doing everything we can to address the bad actors.”
Goldstein’s office oversees a task force created by Governor Deval Patrick in 2008 to investigate wage and tax violations, which often deprive the state of revenue and create unfair and unsafe working conditions for employees.
Among the most egregious cases investigated last year was the renovation of Boston’s Marriott Copley Place, where state officials uncovered more than $1.1 million in unreported wages by contractors at the Back Bay hotel. The state collected more than $100,000 in fines and unpaid wages and taxes as a result of the case.
The enforcement action followed a Globe report revealing that one contractor in the hotel, Installations Plus of California, was paying as little as $4 an hour to workers from a Philadelphia church that assists men struggling with substance abuse and other problems. The men were put up in a pair of Chelsea apartments during the renovation and often asked to work 12-hour days moving furniture in the hotel.
Labor leaders in Boston said similar wage and tax violations are still occurring at work sites in Boston and around the region. “It continues to be an issue for us,” said Mark Erlich, executive secretary of the New England Regional Council of Carpenters. “The economy is picking up, and more of our members are going back to work, but we’re also seeing an increase in illegal activity across the board.”
Labor violations are not limited to the construction industry. In its report, the joint task force detailed a series of audits that found $11.5 million in unreported wages by companies engaged in everything from home health care to auto sales to adult entertainment.
The failure to properly report wages often results in a loss of state of tax revenue as well as a failure to pay into the Social Security system and the Massachusetts unemployment insurance trust fund, which provides assistance to people who are out of work.
The impacts of such violations spread throughout the economy. Legitimate businesses must pay more in unemployment taxes and compete against companies breaking the law. The state loses tax dollars to pay for critical services, and underpaid employees find it harder to stay afloat financially, relying more on the state for help.
“In some of these cases, people are holding down two or three jobs, and their family income is still not a liveable wage in Massachusetts,” Goldstein said. “That’s obviously problematic.”
Goldstein’s office is leading a study of the underground economy in Massachusetts to better define the scope of the problem and target enforcement efforts. The study, conducted with the state Department of Revenue and outside researchers, is expected to be completed next year.