> I would guess if you meet your tax obligations and employment law obligations you should be ok.
If its an audit red flag, that's a risk even if you aren't breaking the tax rules associated with that transaction -- it increases the risk associated with any tax rules you might, knowingly or not, be breaking.
Further, if you are using it to vet potential permanent employees in working conditions as much like the ones they will be working in as employees as possible, its quite likely you aren't meeting your employment law obligations when you designate them as contractors (and, because tax treatment is tied to that designation, quite likely as a result not meeting your tax law obligations.)
Certainly, the best advice is a domain expert working for you in that capacity, that knows exactly what you are planning, rather than your payroll company speaking in generalities, but in generalities the advice given doesn't seem all that bad.
One common mechanism is the use of third-party staffing agencies who are regular employers of the staffers for the contract period the way the payroll company upthread recommended.
Direct contract-to-hire is also done, but its fairly frequently not done legally, which is why it gets additional scrutiny.
If its an audit red flag, that's a risk even if you aren't breaking the tax rules associated with that transaction -- it increases the risk associated with any tax rules you might, knowingly or not, be breaking.
Further, if you are using it to vet potential permanent employees in working conditions as much like the ones they will be working in as employees as possible, its quite likely you aren't meeting your employment law obligations when you designate them as contractors (and, because tax treatment is tied to that designation, quite likely as a result not meeting your tax law obligations.)
Certainly, the best advice is a domain expert working for you in that capacity, that knows exactly what you are planning, rather than your payroll company speaking in generalities, but in generalities the advice given doesn't seem all that bad.