Independent contractor or employee? New business-friendly definition is coming.

If you're able to classify some of your workers as independent contractors, rather than employees, your company can save a lot on taxes, benefits and legal liability. But misclassifying someone as a contractor can be an expensive mistake, in terms of unpaid overtime and legal costs (see example in box below).

The good news: The U.S. Department of Labor has proposed a simpler, employer-friendly definition that could make it easier for companies to classify workers as independent contractors.

Under the DOL proposal--which the agency aims to finalize by year-end--workers would be considered employees if they are "economically dependent" on your company for work.

But those who operate independently and have their own personal opportunity for profit and loss would be classified as independent contractors.

The key would be the nature and degree of the worker's control over his or her own work (ability to set working hours, decide projects, etc.). The more control the worker has over those factors, the more likely he or she could be considered an independent contractor.

If a worker's status still isn't clear after evaluating the degree of control and opportunity for profit, other factors serve as additional guideposts:

* The amount of skill required for the work. Employee = The work requires no specialized training or skill and the employer provides tools. Contractor = The work requires specialized training or skill the employer doesn't possess.

* The degree of permanence of the working relationship. Employee = The work relationship is indefinite or continuous. Contractor = The relationship is by design finite in duration or sporadic.

* Whether the work is part of an integrated unit of production. Employee = The work is a component of the...