There are many pilots who also have other outside business interests and contracting through an agency enables them to ensure that their affairs are maintained on an arms length basis. Also some companies use base allocations in order to try and get staff to remain loyal. They can be left waiting years before getting their preferred base whereas contractors in some instances can swing a home or preferred base more easily.
The labour rules and tax mitigation reasons are generally the most common though for contracting, both from an employer and contractors point of view.