A while back, Glenn Beck had one of the commies who is working for Obama, I forget his name, on his show for an interview. During the interview he revealed that he had owned a maid service several years back and he got busted by the State of California for having all the people who worked for him as 1099 contractors. The state apparently thought he should have had them as employees, and paying payroll taxes. Of course he didn’t admit that part of it and tried to turn it into an issue of how workers are abused.
The short of it is that very small businesses might be able to get away with doing 1099s, but once they reach a ceratin size they’ll start being punished for it.
I’ve heard there are some size limitations. Keep the number of employees below the critical number (10 I think) and the garbage doesn’t kick in.