Isn't that a good thing? Each team has its own vacation policy that suits them, instead of some rules imposed on them by HR department.
(This isn't sarcasm, I actually do vaguely suspect the world would be a better place if we did this.)
Economics of scale would also be lost, if you had to do all the book keeping, IRS reporting, etc etc for 120 companies of 10, instead of one company of 1200.
In fact, outsourcing HR in particular is a well-established field - it's what companies like ADP do.
Just like there's a happy ground between one massive monolith and multiple microservices per engineer, I think there's a happy ground between a 1200-person company and a bunch of sole proprietorships. It may not be 10; it might be 50. There are a huge number of <50-person companies in the world and they seem to be fine. In many cases, groups of these companies can execute faster than a 1200-person company can, because there's less internal hierarchy involved. (In much the same way that avoiding microservices doesn't mean you have no problems of interoperability, it just means they look different.)