Generally, the taller hugger puts their arms around the waist of the shorter person, while the shorter hugger puts their arms around the neck or shoulders of the taller person. The opposite can also happen, especially if there’s a big height difference: the taller person places their arms around the other person’s shoulders (and draws them into their chest), while the other person wraps their arms around the waist.
Generally, the taller hugger relaxes their upper arms, and reaches around to hug with their lower arms. The shorter hugger can hold their arms straight out, rather than bending at the elbow.