I run my own very small business and I have one employee. She is sort of an all around assistant. Because it's just the two of us, it's a fairly informal work environment. She earns a salary. She has freedom to come in late or step out in the middle of the day or take a day off if she has something personal to tend to so long as work gets done. And if we're very busy, she will stay late or do some work from home as needed. I don't know that I would say we are friends but we are certainly friendly and I have invited her socially on a couple of occasions. Anyway, I think she has gotten a little too comfortable/familiar as if we are business partners rather than her being my employee. I need to put the kibosh on it but I don't want to tarnish our working relationship (and she's particularly sensitive to criticism). Thoughts?

Hmmm I would say you should say "things seem like they have been tense lately. I really appreciate all your help - I hope you know that. but are you unhappy in this job?" open up the convo. if she leaves, she leaves
OP: appreciate the feedback. It's not really an ambition thing. It's more a not knowing her place thing. I am open to hearing her opinion if she has one since she knows the business well. But ultimately decisions are mine to make. I make a decision she does not like, she acts pissy and then is passive aggressive. Example: I prepared a mailing to clients and she suggested a change in the wording. I thanked her for her feedback but said I wanted to stick with the original. So she didn't mail it when she was supposed to, and I had to ask her several times. The attitude was sort of "well, if you don't appreciate my input, do it yourself." But she was hired to be an assistant and do things like put things in the mail. It's not like she was hired to make that content decision and I took it away from her. Also, she seems to think that if I take time off, she should take time off too. But I hired her to cover for me on admin stuff so I can take time. It's sort of like having a nanny who wants to go home early because you got off early and came home, even though you paid her til 6 and you could use the extra time for yourself. It's like she expects me to share what is mine with her.
I think this depends on what the actual behavior is that is bothering you. If you think she is acting too much like she has ownership in the company, maybe talk to her about her long-term ambitions. Maybe she is doing this to try to show growth and is just wanting more responsibility? The two of you could agree on some goals for her for the next 6-12 months that would allow her to grow, but also sets this increased responsibility within clear parameters that you are comfortable with.