Paying Contractors Hourly - Is this a good idea?

[Sean Salandy]

I am in the process of interviewing contractors and I have had several contractors offer to work/get paid hourly. They are basically saying I can pay for the materials and they will get paid for the work based on the labor hours. I will also pay any sub-contractors directly for their work (not hourly in those cases). This seems like it could either save me money or cost me more in the long run.

Has anyone used this method of paying contractors? If I do decide to go this route, how can I avoid having the courts or the IRS view these contractors as my employees? Also, does anyone have suggestions on setting up a contract to have the contractor sign to ensure I am protected in case the work is not being done in a timely manner, quality, etc.? Thank you in advance.