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.
With states desperate for revenue, more small companies are being audited. 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 http://www.irs.gov/businesses/small/index.html and click "Independent Contractor (Self-Employed) or Employee?"