My first software development internship out of College was for a decent sized insurance company who's programming workforce involved about 100 in house employees and 100 working as contractors. The contractors worked the same hours, used the same equipment, worked on the same teams, and in all general job aspects were identical to the contractors, but the in house employees had benefits and were allowed to attend company events, while the interns and contractors were barred from participating in any event paid for by the company.
All contractors were required to work through hiring agencies in what looked like an attempt to bypass federal wage and benefit laws, though this would probably be thrown out in court because they completely mirrored their in house employees in every aspect. As an intern, my manager tried to get me hired on as a contractor full time after college. Though my manager had approved a wage up to 45$ an hour for me, the hiring company assured me I wouldn't be able to start over $20 an hour as a software developer fresh out of college. The hiring agency I was to be routed through was setup by this company, which makes me suspect that someone was taking a cut from the contractors pay for themselves.
It took me 4 months of hand holding, about 10 emails, two in person meetings with HR, and one face to face with payroll for me to show them that they were rounding down every hourly employee's clocked hours worked, which was against the FLSA. Three months after I left the company for another that started me at $35 an hour, my old company sent me a check for $68, an audit of the wages actually owed from their time rounding.
The really interesting part to me was half the contractors were Indians on work visas who seemed to be making about $20,000 less each year than their peers. Meanwhile, there were a few 1099s making $100 an hour who were really worth half that. I suspect corruption and a bad HR department was draining this company of a lot of labor capitol.
No moral of the story, just my personal experience that I felt was related to the topic at hand.