This is a great strategy. For “low” skill workers (gas station, grocery store, etc.) it might work if you can get along with your competitors on the matter.
Here is something else I have been thinking about. Businesses could make all their “employees” (or most or part) “contractors”. This would require each of them to set up their own LLC. But they would be able to pay their employees a lot more as they wouldn’t have to do as much for taxes, SS, Mediare, workman’s comp, etc. The employee would be responsible for all of that. But by my calcs, in industry I am familiar with, this looks like about a 70% pay increase with savings to the company being trasferred to employee.
The biggest problem with 1099 employees, and I use them all the time, is that many are too greedy to not set aside the 30% or more of their check when they get it in to cover the taxes at the end of the year.
I had one guy literally break down and cry a few years ago when I told him I had to 1099 all the money I had been paying him for the lathe work he had been doing for me in his little garage.
He even offered me cash to lose the thing, I had to tell him my accountant takes care of all that and I sure as hell wasn’t going to get audited because he decided to buy a new truck and pay cash rather than set some aside for taxes.
I almost guarantee it got “lost in the mail”.