DRAW CLEAR LINES – if employees who resign are later rehired as independent contractors, make sure they don’t work in the office. Give them new titles. Your retained workers might be "staff representatives" while the contractors are termed "outside service agents." Avoid requiring these people to spend all their time working for you. Ideally, they should advertise and have their own business cards and phone line.

DOCUMENT RESTRICTIONS – When placing limits on workers, document the restrictions. If you require them to wear ID badges or use company vehicles, your contracts can state that you’re responding to customers’ safety concerns.

KNOW YOUR INDUSTRY – Build a file that shows you’re in sync with industry standards. If using contractors is a common practice, that’s a point in your favor. Federal law now states that if you show that at least 25% of similar companies use contractors, it’s considered "recognized industry practice."

GET GOOD LEGAL COUNSEL – If you relied on legal advice when setting up agreements, this will help protect you from reclassification. In a recent IRS ruling, a limited partnership treated some of its workers as contractors after consulting with a senior law firm partner who specialized in employment tax issues and was a former IRS attorney. The IRS said the advice was a "reasonable basis" under Section 530 to treat the workers as independent contractors. (PLR 9801001)

DON’T SETTLE EASILY – You could face more problems if you do. In one well-known case, Microsoft agreed to pay disputed employment taxes and retroactive overtime when the IRS said many of its workers were employees. But after the settlement, some reclassified workers sued Microsoft asking for benefits too.