They have to pay payroll tax and administer payroll. I ran a bootstrapped business, that initially had several contractors, till a day I could afford to replace (in several cases, promote) them to employees, so I know this intimately. Additionally, there are payroll costs and the accounting costs, and the payroll administration burden. For a tiny growing business with no outside capital it matters more than you know.

The 5th largest economy figures come from semi monopolies like Google and Facebook. In the beginning, they get a VC investment, a comfortable office, a payroll admin and Wilson and Sonsini from day one. In the meantime, San Francisco restaurants cannot afford cooks.