The problem is that she still IS a family friend, even if the reason she is writing the letter is because she hired you. Letters of evaluation are supposed to be a way for a medical school to hear the opinion of an unbiased party (someone whose relationship with you is based on business or academics). If she was a family friend before she hired you as a tutor, it is going to be hard for her to convince them that she truly is unbiased and isn't just trying to help a close friend get into medical school. It also makes it worse that the nature of your employment with her is a more personal relationship. If she were, say, a manager of a larger grocery store for which you were a cashier, it would mean that the terms of your employment were less personal. In that situation, you would be working for the grocery store as an entity, not for her personally. Since you are working as a private tutor for her students that contracts independently (I'm assuming this isn't being run through a tutoring service), you are working for her personally. This doesn't help you make the case that she is unbiased.