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Small-business advice: Don't misclassify employees as independent contractors

Also: Even online companies should have real business cards.

August 30, 2010|By Karen E. Klein

Dear Karen: Some former employees now work for me as independent contractors. Is this a tax problem?

Answer: Many companies that downsized in recent years are bringing back employees as part-time contractors. The practice allows you to save up to 10% on payroll taxes and workers' compensation, but you must not misclassify them or you could face an unemployment tax audit, said T.J. Moore, an accountant with Citrin Cooperman in New York City.

With states desperate for revenue, more small companies are being audited, Moore said. If an audit determines that you've misclassified an employee as a contractor, your business could be hit with back taxes and fines. For detailed rules, go to and click "Independent Contractor (Self-Employed) or Employee?"

• Yes, you need business cards

Dear Karen: My business is done almost exclusively online. Do I really need to spend money on business cards and letterhead?

Answer: If your business is conducted entirely electronically, you may not need business stationery. However, face-to-face networking, including the exchange of printed business cards, is still important for most entrepreneurs. Having substantial, professionally printed cards encourages colleagues and potential clients to take your company seriously.

Save money by requesting four-color process ink and standard paper rather than specialty stock, said Andrew Field, founder of "Per-piece costs go down as your order quantity increases, so consider doubling your quantity. It is surprisingly cheap," he said. Finally, allow plenty of time; a rush job can cost you dearly.

Small-business questions? E-mail Karen at

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