Find out the difference between employees and contractors. For Employers: Independent Contractor (Self-Employed) or Employee? It is critical that you, the employer, correctly determine whether the individuals providing services 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. For Charities & Non-profits: Independent Contractors vs. Employees Description of the types of relationships between workers and exempt organizations for which services are provided. For Government Agencies: Tax Withholding for Government Workers In most cases, individuals who serve as public officials are government employees. However, there are special rules that apply to determine whether certain groups of government workers are employees, and additional rules that create exceptions to general rules for income tax, social security and Medicare tax withholding.