This is the second installment of our series "What Keeps a Professional in Human resources Up at Night"

In addition to the enforcement of the FLSA, the Wage and Hour Division is seeking to add hundreds of full-time staff to support the DOL’s initiative against the age-old problem of misclassification of independent contractors and other labor violations arising from misclassification. Along with the budget and staff increases, the DOL expects its investigations to increase as well in 2012. According the DOL’s budget summary, the DOL is planning on conducting an additional 3,250 investigations.

Recently, different news agencies such as the Wall Street Journal and the St. Petersburg Times have reported on a recent investigation by the Labor Department of large U.S. home builders such as Pulte, Lennar Corp., D.R. Horton Inc. and KB Home to see if they failed to pay workers the minimum wage or overtime. To determine if they are not in compliance, investigators have requested mountains of records, including employee time sheets, payroll and Social Security records.

Other industries targeted with higher rates of violations include:

• Hospitality
• Home health care
• Grocery stores
• Janitorial businesses
• Poultry and meat processing
• Child care
• Business services
• Landscaping

The IRS has also added additional staff to identify employers who are evading employment taxes by misclassifying employees as independent contractors. Given the Federal budget issues and revenue needed to fund programs such as Health Care Reform, the IRS has renewed its efforts to collect the millions of potential tax revenues created by employers and workers skirting their tax obligations by intentionally paying “under the table” or misclassifying workers who should be employees, as independent contractors. Penalties and interest add up quickly and officers or other management employees of the business can be held personally liable for the payroll taxes that should have been withheld and were not paid to the IRS.

It’s not all bad news though.

The IRS has recently announced its new Voluntary Classification Settlement Program (VCSP). The program, which is designed to help employers resolve past worker classification issues, provides employers the opportunity to reclassify independent contractors as employees BEFORE an audit occurs. Employers who voluntarily reclassify workers pursuant to the VCSP will receive substantial relief from the payment of past payroll taxes and related penalties and interest. To participate, an employer must apply to the program, agree to prospectively treat its workers or a class or group of workers as employees for federal employment tax purposes and pay 10 percent of the employment tax liability that would have been due on the employee’s compensation only for the most recent tax year. All in all, for an employer who may have been misclassifying workers for years, the savings could mean staying in business as opposed to being out of business.

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