1) cost : contractors without work are free. No insurance (not even with ObamaCare). No providing infrastructure. No nothing ...

2) risk : contractor fucks up, contractor is legally responsible. Employee fucks up, firm is reponsible.

3) Ease of firing and the resulting pressure that can be applied to employees. Contractors don't even have to be fired to be fired.

4) Customer/payment risk. Suppose a customer doesn't pay. In the case of an employee, the employer has to pay the employee and the infrastructure. In the case of a contractor, the contractor is screwed (in some cases they actually have to pay transaction costs even if the customer doesn't pay)