It's not purely a tax decision. Staff gets fired when they screw up. Contractors just don't get re-upped. Staff have a 1:1 relationship with the company. Contractors have a 1:N relationship. When they don't get re-upped, they take more hours elsewhere.
It is purely a tax decision on how this person is hired. If they worked there as a w-2 employee, would the OP be similarly hand wringing?
Contract to Hire is a very normal way to hire. Subcontracting at least SOME of the work is actually a sign of specialization, and can create much better work then just doing everything in house.
The OP has no idea how the style he likes so much was actually created. It could have been created by a Slovakian national working on an internship for all he knows
If you want quality signoff agreements, then make those. Don't get all scared the first time you find one part of the project is not 100% done by staff that's been there for decades. It's a company. It hires people. That's what makes a company different than a freelancer.