Not sure if this is for everyone here but, since I get the question so often, I felt I can at least help a few of you out. Please understand that this is the most basic of explanations for which I would be more than happy to elaborate the best I can. This is on the Federal level and your State laws can have their own variances. I am an employer and human resources professional in the state of Pennsylvania, however; I have hired for employees in New York and New Jersey as well.
The simplest of definitions would state that an "Employee" is someone who works directly for a company, receives regular pay for assigned work, has taxes withheld by way of a W4 for which they will receive a W2 at the end of the year for tax purposes, and is usually eligible for benefits and other company perks when they are employed full-time.
A "Consultant," often called an "Independent Contractor" is someone who is contracted for specific work by a company, is expected to perform the duties defined within the confines of the contact, receives pay for said services, withholds their own taxes for which a good company will assist them with a W9 and for which it is preferred they claim their taxes quarterly on a 1099. Independent contractors are not usually eligible for company benefits and perks.
In the Medical Coding world, there are employees and consultants and both can be paid per hour or per chart (or other piece rate methods). Both positions are subject to productivity standards and both positions are usually "at will" which means that either party can nullify the working relationship at any time without notice. Coming from experience, it is preferred that notice is given so the employer will give you a positive reference. I hope that this answers a lot of questions for you and if you have questions regarding becoming a consultant with H.I.M. ON CALL, send me a note with this blog post and I will let you know if we have anything for you.