In Massachusetts you can't hire someone as a contractor that is in effect an employee. It's really tricky to get right. But they're extremely strict about it so employers can't evade payroll taxes, workers' comp., etc.
In Arizona a person is not a contractor unless they can set their own times and their own pace to complete work that is assigned.
That means as a contractor you can't be forced to come into the office at 9:00 AM to work till 5:00 PM, if you are not allowed to set your own work schedule you are not considered a contractor and the company should be paying your taxes and you should be getting a W2 instead of a 1099.
They were fairly strict in that regard as well, my boss was paying me as a 1099 and I wasn't aware of this, and the business got audited by the IRS and he had to retroactively pay taxes and they talked to me and I had to redo my taxes for the two years I worked there. Was a nightmare.
This is federal tax law, and it applies in all 50 states. Contractors also must provide their own equipment (i.e. computer) and be able to make a profit or loss on the engagement. Absent these conditions, you are an employee as far as the IRS is concerned, and your employer is responsible for a great many taxes and sometimes overtime pay.
Where I work we had contractors that were contractors because they didn't fit into company wage scales, i.e. they made too much money. Some of them had been here more than ten years. After that suit all of them were let go or converted to employees at substantially lower wages.
Maybe. The point of hiring top dollar people is the skills that can get you a job are not the same as the skills you need to actually do the job. We would tell them straight out - "Look, we're paying you top dollar, and we expect you to produce." But no matter how careful you are occasionally a lemon slips through the hiring process. If he's a contractor you call up his agent and he's gone the next day. Employees? Not so much.
So when contractors aren't an option management switches gears and says "We're providing all these benefits and growth potential. Hire the best people you can get in this salary range." And what you get, instead of superstars, is plodders.
http://en.wikipedia.org/wiki/Permatemp#Vizcaino_v._Microsoft