You’ve asked a pretty detailed legal question, which also has tax implications. You can go to the www.irs.gov for the IRS’s tax opinion on the difference between them and how to fall, for tax purposes, into one bucket or the other.
Employees – work is more highly controlled / supervised by the place of work. May include rules, evaluations, and a framework for job duties and expectations. Receives a W-2.
Contractors – work for themselves. The place they rent has little to no control over their work product. If the place they’re working collects money from customers and pays the contractor, contractor receives a 1099. If the contractor collects the money directly, they won’t get a 1099 and are responsible for tracking their income for tax purposes.
Does this help? There’s a whole lot more….