My experience of this in New Zealand was that it usually indicates a company that wants to avoid paying the various taxes and levies that go with hiring a full time staff member, and is often an indication that they are not offering much job security. However it can just mean that they're small and don't want the paperwork hassles, but are otherwise good to work for. Remember that it's very easy for most companies to hire you then dump you, so the benefit of making you a contractor is limited to paperwork and honesty.
How I tell is looking at the pay. If the position is worth, say $60k, and they're offering $40/hr, they're probably decent people. But if they're offering $30/hr, it doesn't matter what they tell you because they're trying to cut costs at your expense.
I've been through this a couple of times and the hassles of working for the bad sort are hard to overstate. At worst you'll be treated as a casual "that task has been delayed, take a few days off" (unpaid, of course, you're a contractor), and you may be paid on invoice the same way any other supplier is paid... late.
The decent ones have been great, though. They'll put you on PAYE (ie, they do all the paperwork) and pay you an hourly rate that gives you annual and sick leave (etc). And they'll generally keep you as informed as they are about how long there is work for - it's not uncommon to have them say "if we get this job we'll want to keep you on for however long it takes" or "after this job we won't have work for you". One like this kept pestering me for years to work remotely for them on weekends as well as whatever full time work I had. Probably because I accepted the work a few times :)