Hiring wife as contractor or employee?

I work 9-5 and I also own this small business, it is just a DBA. I don't even have a business tax id. I use my own soc sec number



Last year I made 28K and this year I think I will be over $40K. Up until now, I never thought about having solo 401K or SEP IRA.



Searched internet read some articles but I am still not clear on certain things



1) My wife is not working so if I hire her as an employee what am I supposed to pay as tax to the government? Say I hire her paying $18K/year, can she then invest all of this income to her own personal 401k?



2) If I hire her as a contractor, what would be different? Which one makes more sense for us?



3) If I don't hire her, all I can invest in 401k is 25% of the net income from business which is very small. So what would be the best strategy to get most yield out of this small business?



Thanks