Independent Contractor (Self-Employed) or 

Employee?

It is critical that you, the business owner, correctly determine whether individuals providing 

services to your company are employees or independent contractors. Generally, you must 

withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay 

unemployment tax on wages paid to an employee. You do not generally have to withhold or pay 

any taxes on payments to independent contractors. If you are an independent contractor and hire 

or subcontract work to others, you will want to review the information in this section to determine 

whether individuals you hire are independent contractors (subcontractors) or employees. 

Before you can determine how to treat payments you make for services, you must first know the 

business relationship that exists between you and the person performing the services. The 

person performing the services may be:

• An independent contractor 
• 
  
• An employee (common-law employee)
• 
  
• A statutory employee  
• 
  
• A statutory nonemployee 
• 
  
• 
  

In determining whether the person providing service is an employee or an independent contractor,

 all information that provides evidence of the degree of control and independence must be 

considered.

Special Update: The Voluntary Classification Settlement Program (VCSP) is a new optional 

program that provides taxpayers with an opportunity to reclassify their workers as employees for 

future tax periods for employment tax purposes with partial relief from federal employment taxes 

for eligible taxpayers that agree to prospectively treat their workers (or a class or group of 

workers) as employees

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