What is the difference between independent contractor and employee?

While they may perform the same type of job and receive similar pay, the difference between an employee and independent contractor is important. Employees are paid salaries and the company withholds income tax, Social Security and Medicare on wages paid, while no tax is withheld for Independent contractors. Basically, an employee is a worker hired by a company to perform a specific job while an Independent contractor is an independent business person, with his/her own business who does work for another business.