The IRS is very picky about what constitutes an independent contractor. This has long been abused by companies trying to skirt employment law and avoid payroll taxes. They have a litmus test of sorts to determine whether someone is an employee or an independent contractor (tl;dr: if you treat them like an employee, they're an employee). And of course, there are significant penalties for getting this classification wrong.

For more details, go to the source: http://www.irs.gov/businesses/small/article/0,,id=99921,00.h...

What a policy? What would you do with people who get fired? It's pretty rare to lose your job at one place and pick up a new one the same day. How are they going to finance their life until they find a new job?

In other countries where employee protections are better there is usually an actual written contract in place that says employment must continue up to two months after notice is given from either party.

And yes, that does make contractors more practical but that's good because it pushes contract rates up.