Back in 2006 I ended up starting an LLC (nieve young man that I was), but didn't end up getting my business taxes done by an accountant until 2008, and I ended up shuttering the LLC aspect of the business shortly thereafter because of the automatic $800/yr that California charges in taxes for that privilege.
In mid-2010 I started the software business (first time I had gone that route, prior to this with the LLC it was mainly work creating websites for other local businesses which never amounted to much since our area just isn't very tech savvy and I didn't market myself online). This I can say was my first real success (in that I was able to create a mini-business that actually resulted in some profit at the end of the year) and I've been maintaining that ever since, but it hasn't really grown much over the past few years (though updates have been put out, I haven't developed as many of the new products I had ideas for, primarily because the day job eats up so much of my energy and pays the bills).
My goal though is to eventually build up that mini-business enough where I could provide a few local development jobs and maybe start building up that sort of industry locally, since our location doesn't really matter when we can market to the world at large :-). (Our county has the highest unemployment in California at about 25%).
As far as the lawyer/labor laws stuff, I do believe you're right there, though I was hoping a new service like Zen Payroll would allow me to not have to worry about those sorts of things and just worry about getting money to/from the employees.
You're also right that $200-$300/mo doesn't really justify paid help, to a degree, but since I have my day job and can't put a lot of energy into the software business, getting some help to build out those ideas for new products wouldn't be a bad idea.
Right now he's volunteering to gain experience, but as I've decided to do a few small contracting development jobs recently (mainly to earn some extra money for the business so I can give him something) I'm giving him some of that extra money and paying for the lunches we're having together as an additional thank you. So far I haven't given him enough to justify making him an independent contractor and doing any W-9 stuff, but I'd definitely like to do more for him if I can, I'm just looking to see what the best options might be.