An employee is someone who performs a service for a company. In general, a business owner must withhold income taxes and withhold and pay Social Security and Medicare taxes. This includes unemployment tax on wages paid to an employee.

For instance, the IRS classifies a worker as an employee, if: 

1. The person performs services for an organization.
2. If the organization can control what will be done and how it will be done. 
3. They earn a specific wage/salary. 

There are legal differences between an employee and an independent contractor.

A company withholds taxes, Social Security, and Medicare from the wages that they pay an employee.

The company does not withhold taxes for an independent contractor, and labor laws do not apply to independent contractors.

As mentioned above, it’s important to designate the difference between employees and independent contractors in your workplace for tax purposes. If an employer accidentally classifies an employee as an independent contractor, the employer will be liable for all employment taxes that haven’t been paid.

Related Terms: Independent Contractor, Employee