HOST: As your small business grows, you'll probably need to hire some help. Are these people independent contractors or employees of your company? Well, according to our legal expert, John Patrick Dolan, that depends.

JOHN DOLAN (Legal Expert): If you have an employee, you must pay them wages, you must deduct from their wages employee taxes, you must meet or match some of the tax liability and send this in to the taxing authority, the federal government and your state government. If you're hiring an independent contractor, you pay them once and that's it.

HOST: Well, I've got the answer. All of my employees are independent contractors.

JOHN: Well, a lot of small-business people like to say that, and a lot of small-business people want to believe that because their liability is usually less. The actual number of dollars outlaid for job performed is less. Here's the problem: The government looks at situations where there's a dispute, whether or not you have an employee or an independent contractor, and they look at things like this: Do you tell this person when to come to work? Do you provide the tools of work--business cards, PCs, desks, etc.? Do you tell them the kind of work they need to do and give them rules for doing the work? Do they work for anybody else? And if you don't pass these tests, if it looks like they're only working for you, even though you're calling them an independent contractor, and you tell them where to work and when to work and you provide the tools, you have an employee. And many small businesses have--have been hit rather hard by taxing authorities that come in and establish, `For the last 10 years, you've been saying you have independent contractors, but you really have employees. You owe us $10 gazillion in taxes.'

HOST: So your advice is, don't fudge on this one.

JOHN: If you have an independent contractor, someone chosen for a short period of time to do a particular task, of course, treat them like an independent contractor and save whatever expenses you might otherwise expend if they were an employee. But if they're an employee--I mean, if they're with you longer than about 90 days, they're pretty much an employee. Start withholding and paying your matching, and don't think you're fooling anybody.