I had the same issue when I was a contractor at Allstate in the investment department. They were frightened by the Quaker Oats decision where they paid folks as contractors who "forgot" to do their own tax withholding.

This was in the days of cubes, and contractors got the ones that were two folks per cube and there were other things.

Some of us did get hired and became "real". But the concerns that led to this kind of treatment were quite real.